Knowing what’s next: the importance of reading and understanding the CMI

Every month, credit managers from across the United States complete a survey reporting the conditions of their last monthly business cycle, looking at their sales, credit applications and the accounts placed for collections. The survey is compiled into the Credit Managers’ Index (CMI), a monthly forecast that shows how the current economy and business environment are impacting customer behavior and, consequently, the day-to-day work of credit managers.  

Why it matters: Economic forecasts offer credit managers a glimpse at the economy, helping them tailor their approach to extending credit to the current business credit environment. The results of the CMI directly correlate to a credit manager’s work, making it an invaluable resource to credit professionals across industries.  

“The CMI is the only real indicator about how accounts receivable portfolios are moving,” said Kevin Chandler, CCE, ICCE, director of financial services at Zachry Industrial (San Antonio, TX). “The consumer price index and purchasing managers’ index, while important, are not really germane to what we do on a day-to-day basis in credit, but the CMI is. The CMI is much more accounts receivable-oriented.” 

For David Escobar, credit and collections manager at Evapco (Taneytown, MD), the results of the CMI help him anticipate economic conditions in the coming weeks and months. “I use the CMI as an early warning indicator,” Escobar said. “Each month, after I take the survey, I check the trends, especially the payment delinquencies in new credit applications, just to get a read on whether customers are slowing down or becoming more aggressive with credit requests.” 

By consulting the CMI, credit managers can predict payment trends in the coming weeks, which can help them devise plans that best protect their companies from risk. “If I see a negative trend, I’ll generally either try to tighten our credit reviews and push for more upfront payments or just adjust terms on new orders,” Escobar said. “It’s great ammo for explaining risk trends to our management or sales team, especially when we have to justify a tougher stance on orders.” 

Economic indicators play an important role in the business credit field, helping credit managers plan for the future, with an increasingly troubled economy leading to increased delinquencies, late payments and bankruptcies.  

“There’s always room for contextual data,” Chandler said. “We all read the paper and look at the stock market; there are so many indicators you can look at. The CMI is another piece of data, but one that is much more specifically tied to our profession and the customers we work with.” 

When it comes to reading and interpreting the CMI, it might be difficult to know where to start. While it may feel like an onslaught of information, paying close attention to the individual variables, whether it’s new credit applications or bankruptcies, can be an entry way into reading the data. The way you read the CMI can easily be shaped by the area of credit in which you work. If you’re in a more volatile industry that tends to see more bankruptcies, looking at changes in the number of bankruptcies reported in the CMI could let you know if you need to start keeping a closer eye on those more worrying accounts.  

“We need to be strategic,” Chandler said. “Having our ears to the ground, trying to figure out what’s going on in the marketplace, what’s going wrong with particular customers and how we help our companies to be successful—that’s part of the role.” 

The bottom line: The CMI documents trends in accounts receivable that can help credit professionals anticipate and prepare for changes. By completing the CMI each month, credit professionals not only help create an accurate, forward-looking economic indicator but also highlight the vital importance of robust risk mitigation strategies in driving business success.

Click here to participate in June’s survey, which closes on Monday.