In the News
January 17, 2019
FinTech innovations and companies continue to grow at a rapid pace, pouring into the e-payment market over the past decade. FinTech doesn’t appear to be slowing down—like other technologies, FinTech seems to be gaining more exposure and use from credit professionals. As FinTech continues to develop, federal regulation in the U.S. remains marginal. Regulatory measures have been made across state lines, but little has been done under federal law—and much of that comes from the U.S. Federal Reserve’s hesitation and FinTechs’ demands for federal banking information, according to a recent article by Reuters.
The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have begun discussing the possibility of granting FinTech firms federal bank privileges through licenses. If a FinTech offers money transfer and lending services, the company would qualify for a federal bank-type license.
FinTechs are hesitant to invest in these nationwide expansions without access to federal payment systems, something a license will not currently grant the FinTechs. Without this form of access, settlement services and the federal tools that nationwide banks have access to, several FinTechs are not willing to comply. FinTechs still depend on federal banks to route money, a costly dependence on routing fees that can be avoided with direct access to federal payment systems.
But with such little federal regulation and FinTechs still merely a decade old, officials do not trust FinTechs to keep banking and other sensitive information safe.
“They probably do want access to the payments system, but they don’t want the regulation that would come with that access,” St. Louis Fed President James Bullard told Reuters in November. “I am concerned that FinTech will be the source of the next crisis.”
In the credit department, FinTech innovations have been emerging as a means for collection. Credit managers have been taking advantage of services from companies such as PayPal, Kabbage and OnDeck Capital—a handful of the major players in this conflict with the federal banks. Should these FinTechs receive access to federal payment systems, credit managers will not have to account for routing fees in budgets and pricing; however, since there is still little government regulation, credit managers may need to be wary of security concerns.
Many of these proposals come with the territory of technological disruption, a concept that has been jostling the credit department over the past decade or more. Credit managers need to continue to innovate and keep up with technology, while also being aware of the dangers that come with technology and FinTechs.
“Over the last 40 years, there has been just a huge change, not only in the tools but in the way we learn these tools,” said Barbara Condit, CCE, credit manager with SPS Companies. “Your systems, all the way from automatic cash app to credit card payments—this has all changed over the years, and you need to integrate these systems into your accounting programs.”
The motivation for this change comes from an initiative by the Trump administration to boost small businesses and promote job growth. Companies, such as PayPal and LendingClub, have been offering lower prices and more convenience than traditional bank models, making them optimal for small loans that are uneconomical for big banks to provide.
—Christie Citranglo, editorial associate
Credit Congress: Session Highlight
28021. Current Conditions and Outlook in Global Credit Markets
Speaker: Ed Altman, Ph.D., New York University
Most credit market analysts assume the world is still in a benign credit cycle. But how long can we expect this cycle to last and what will be the consequences when the cycle turns to a more stressed environment? Dr. Altman, father of the Altman Z-score, reviews a number of his concerns about the current benign credit cycle and evidence of the enormous build-up in global debt levels, especially in the non-financial corporate sector. He will explore the latest data on default and recovery rates, yield spreads and liquidity in the leveraged financed markets.
Please visit creditcongress.nacm.org for more information and to register.
Early Bird Rate is in effect — Register now and save!
Team discounts (5 or more) are also available for larger member companies.
Time and time again, companies struggling to embrace new technology point to two barriers: cost and a lack of understanding. Although these factors continue to plague many companies, supply chain operators are beginning to navigate a third hurdle in the form of collaboration in and outside of their business—an issue that could directly impact the credit department.
American Shipper transportation research firm—in conjunction with U.S. Bank and Amber Road global trade management software and solutions—unveiled new findings in December 2018 about technology use in the supply chain management process. The four main technologies currently utilized in supply chain management include Internet of Things (IoT), artificial intelligence (AI) and machine learning, predictive analytics and blockchain. The study explained IoT as sensor technology that tracks a shipment’s location and condition in real time and is used for blockchain, which compiles a list of linked records on shipments. AI and machine learning are used to assess data and make decisions, while predictive analytics determines potential outcomes.
As with any change in supply chain management, including credit departments, businesses are bound to encounter issues when implementing advanced technologies; however, problems are amplified when businesses do not work together. For example, American Shippers described a partnership between IBM and well-known shipping company A.P. Moller-Maersk. The venture, called TradeLens, uses blockchain for “a more efficient, predictable and secure exchange of information in order to foster greater collaboration and trust across the global supply chain,” the study states. Despite the venture’s best intentions, other businesses in the container-carrying industry are shying away from participating because of competition with A.P. Moller-Maersk.
“Company officials have admitted that without other carriers, the platform is essentially useless no matter how innovative the underlying technology,” the study notes.
But this issue isn’t limited to competing businesses. Bob Karau, a credit professional at Robins Kaplan LLP in Minneapolis, said his 41 years in the credit industry have shown him that all departments within a single company must be on the same page when deciding to embrace new technology. Karau is the law firm’s manager of Client and Financial Services as well as a CFDD member at NACM North Central.
“AI is the utilization of neural networks,” Karau said as an example. “A lot of times, you hear people talk about closed and opened systems. While you have much more control in closed systems, I would say within any company, a closed system would include the different departments.”
Keith Coward, the product marketing manager for FIS Receivables in Jacksonville, Florida, echoed Karau’s comments, saying collaboration is “absolutely important,” especially pertaining to dispute and deductions. Coward will further explore AI during his presentation, Artificial Intelligence and Process Automation Across the Credit-to-Cash Cycle, at NACM’s 123rd annual Credit Congress and Expo this May in Aurora, Colorado.
Whenever there’s an issue, Coward explained, a company’s accounts receivable team isn’t the only one to help resolve it; they’re a conduit between the customer and other departments, whether it’s a sales or service team.
“It goes beyond artificial intelligence,” he added. “It’s really looking at that collaborative portal for them to be able to communicate back and forth and to have all of the same information at the same time. Having information in real time in a portal is essential to avoiding those hindrances. It’s a challenge to get teams, especially ones that have been fairly high-performing, to adopt new process and trust what an AI engine might be able to do for them.”
—Andrew Michaels, editorial associate
Nominate Someone Special
Do you know anyone working in the field of credit management whose professional life displays unquestioned integrity, outstanding and meritorious service in the field, and ongoing dedication to the highest standards of the credit management profession? NACM's National Honors and Awards Program provides the opportunity for us to recognize our colleagues for the outstanding efforts they have made on behalf of the credit profession.
Nominations are due by Feb. 1, 2019.
Visit www.nacm.org/honors-a-awards.html to learn more and to nominate your choice.
A credit manager’s job never ends. In a given day, you may find yourself investigating a potential customer after they have applied for a significant line of credit, while simultaneously trying to resolve an issue with a long time customer’s order. Juggling a variety of different tasks is commonplace for credit managers, so how do you describe your job when people ask what you do for a living?
A clear and concise job description is important because you have a brief period of time to not only garner someone’s interest for a first impression but also their understanding of the role. In a communicative concept known as “the elevator speech,” an individual must describe what they do in approximately 30 seconds, or the time it takes to ride an elevator. Although challenging for many job titles, credit professionals have an extra hurdle to overcome because their jobs often involve working with several parties, including sales, customers and management.
The NACM-National editorial staff is happy to announce Terri Peck, of Dynapac North America, LLC, in Fort Mill, South Carolina, as the winner of NACM’s 2018 annual Elevator Speech Contest, following a thorough review process of several submissions from credit professionals across the country. Peck, Dynapac’s credit and accounts receivable manager, will receive a free registration to NACM’s 123rd annual Credit Congress & Expo in Aurora, Colorado, May 19-22, 2019.
Peck has been with Dynapac for a year and said she was very excited to receive the winning prize so she can return to Credit Congress for the second time. The credit manager attended last year’s conference in Phoenix, where she participated in the numerous educational opportunities and conversed with other credit professionals who “spoke her language.”
The credit professional of 12 years said she chose a circus-themed elevator speech because customers, the sales team and management are the three units that must work together in a coordinated effort to serve the company and its partners.
“I thought about the components of the company and when the primary functions came out to three, the circus came to mind,” said Peck, who is currently working through her Credit Business Associate (CBA) designation with NACM and wants to further her education at this year’s Credit Congress. “I have the opportunity to touch people in all three ‘rings’ and pull them together for our ultimate goal of keeping payments timely, while solving problems for each group.”
Credit management is important because creditors provide guidance and support to sales for the good of the company, Peck noted. When asked if she plans to use her elevator speech next time she is asked about her job, Peck said she is certainty optimistic but is first planning to share her speech with the company’s president.
“It is a nice ‘tool’ to keep on hand for encounters with other business people who may not be familiar with what we do as credit managers,” she said.
Submitted by Terri Peck, Dynapac North America, LLC, in Fort Mill, South Carolina.
“As a credit and accounts receivable manager, I’m the ringmaster in a three-ring circus. Our customers, sales team and management each occupy their own ‘ring.’ As the show is performed, I promote mutual understanding between the players, giving them each the opportunity to excel in their own area of expertise. I maintain relationships and provide the information necessary to generate the sales and cash flow required to ensure continued success and growth. After all, ‘the show must go on!’”
—Andrew Michaels, editorial associate
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Section 303 of the Bankruptcy Code provides a unique remedy to unsecured creditors seeking to collect their debts against an insolvent entity. In summary, pursuant to Section 303, three unsecured creditors, with claims in the aggregate of $15,775, can place an insolvent company in bankruptcy provided their claims are not “contingent as to liability or the subject of a bona fide dispute as to liability or amount.” 11 U.S.C. § 303(b)(1). The petitioning creditors must also show that the debtor is generally not paying its debts as they come due. 11 U.S.C. § 303(h)(1).
In In re General Aeronautics Corporation, Case No. 17-28510 (Bankr. D. Utah Dec. 4, 2018), the Bankruptcy Court for the District of Utah carefully reviewed one of the more heavily debated issues regarding Section 303(b), whether a creditor with a partially disputed claim has standing to initiate an involuntary petition. In a thorough opinion, Judge Mosier determined that such creditors do have standing. A summary of his detailed opinion is provided below.
With great difficulty, including sporadic shortfalls in funding, General Aeronautics Corporation (“GAC”) tried to build and market gyroplanes for over 30 years. Despite its long history, however, GAC never transitioned beyond being a mere development company.
During GAC’s last funding shortfall in early 2015, many of its remaining employees, who were owed substantial compensation, resigned or were laid off. Before the 2015 layoffs, GAC’s officers had promised nonexecutive employees deferred compensation and bonuses to induce them to continue working. After the layoffs, these employees were never paid. Several executives of GAC similarly had claims for unpaid compensation, bonuses and loans made to the company.
Apart from the employees, the former landlord of GAC claimed he was owed significant past-due rent, some of which dated back several years to GAC’s predecessor. From GAC’s scantily kept books and records, it also appeared that it had not paid significant older debts to third parties.
When the Company received $5 million in new funding in late-2016, its creditors joined to consider their options. In September 2017, several former executives and nonexecutives and the former landlord filed an involuntary bankruptcy petition against GAC, pursuant to Section 303 of the Bankruptcy Code.
At the time, GAC had no revenues and was paying substantial monthly expenses with the limited funding it received in 2016. But, GAC’s cash reserve was diminishing quickly. Moreover, while GAC was staying current on its monthly expenses, it (and its predecessor) had already amassed significant debts (approximately $2.4 million), dating back to 2012, and these older debts went largely ignored for several years.
Notwithstanding its financial outlook, GAC filed a motion to dismiss the involuntary case, arguing that the petitioning creditors lacked standing under Section 303(b)(1), because their claims were the subject of a bona fide dispute as to liability or amount. The petitioning creditors maintained, however, that they had standing as long as some portion of their claims remained undisputed.
Reprinted with permission. Part II of this article will be published in next week’s eNews on Thursday, Jan. 24.
H. Joseph Acosta is a partner in the Corporate Restructuring and Commercial Litigation Departments at the national firm of FisherBroyles, LLP. After 20-plus years of practicing, he has a broad range of experience representing companies, banks, committees, trustees, landlords and other parties in complex restructurings and commercial litigation matters, both in and out of court.
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