Dated Payroll Tech Hinders Key Performance Indicators

Tracking key performance indicators (KPI) can give credit managers an idea of how business is doing and provide guidelines for improvement. However, analyses are only as good as the tools used to complete them, and according to a new joint survey, using dated technology will hinder performance. Nearly 1,000 professionals across several industries participated in the survey. 

On May 21, the American Payroll Association and payment software company Kronos released the Evolution of Payroll Technology Survey that found one-third of employers from small-, mid- and enterprise-sized organizations (SMEs) use decade-old payment technology. Instead, only 11% of respondents said they use “modern solutions” released within the last year. 

“[Some companies’ current technology] was deployed around the same time the world was being introduced to Apple’s iPhone for the very first time in 2007,” the study noted. “The findings suggest outdated, manual processes and legacy payroll solutions limit a payroll department’s ability to track and report KPIs and hinder their ability to keep up with today’s speed of modern business.” 

Respondents from companies that track KPIs reported that up-to-date technology is equipped to measure crucial business elements, including the impact of manual/voided/stopped payments, payment errors as a percent of total payroll payments as well as total processing time per pay cycle. However, payroll professionals are looking toward the future and sharing what they expect from the “next solution.”

 The majority of respondents said they seek on-demand reporting and analytics (87%), followed by seamless integration with time and labor management to improve data quality (81%). The ability to track multiple worker classifications, such as seasonal and temporary employees, was also on 76% of respondents’ wish list. 

“Organizations that proactively invest in new payroll tools that deliver in-depth analytics and an engaging employee experience will unlock yet another door for improved performance,” Kronos’ Payroll Practice Group Senior Director Malysa O’Connor said in a press release.

-Andrew Michaels, editorial associate

US Small Businesses Expect Revenue Growth, More Hiring in 2018

Access to financing hasn’t been a problem for small businesses in the U.S., according to a Federal Reserve annual survey, which found 72% of respondents expecting revenue growth this year. Results of the online questionnaire were released on May 22 with responses from nearly 8,200 companies during the latter half of 2017.

On Tuesday, Reuters reported the survey’s findings of increased profitability and confidence among the country’s small businesses in 2017 as well as easier access to financing. In addition to revenue growth, more businesses also anticipate hiring more employees in 2018 compared to last year’s survey. There was a slight decline in firms that wanted to expand.

“Fewer firms felt the need to seek outside financing, with only 40% looking for outside funding, down from 45% last year,” Reuters noted. “Of the 64% of small businesses that reported trouble paying operating costs, buying inventory or making debt payments, two-thirds relied on an owner or investor’s personal funds.”

The survey concluded that the majority of struggling firms were those with less than $100,000 in revenue—these were the same firms that chose not to apply for a loan or other credit for fear of being turned down. However, financing was approved for 46% of firms that applied, up 6% from the previous survey.

-Andrew Michaels, editorial associate

US Rate Hikes Could Impact Asia-Pacific Banks

U.S. economists tend to keep their ears to the ground when the Fed hints at foreseeable rate hikes, but the country’s latest monetary tightening outlook is also catching the attention of Asia-Pacific banks that could face repercussions in foreign funding. On May 17, Fitch Ratings stated it anticipates the Fed fund rate to reach 3.25% by the end of 2019—a possibility that could make Asia-Pacific banks “more vulnerable.”

According to the Fitch report, banks in the Asia-Pacific region have managed to handle U.S. rate hikes in the past, notably when the rate increased substantially from 1% to 5.25% between 2004 and 2006. However, there’s higher market dependence this time around, which could affect the feedthrough to Asia-Pacific banks in regards to U.S. dollar interest rates, foreign-exchange movements and local interest rates.

“Most banking systems have some vulnerability to market risk, although those appear to be limited” to financial centers in Hong Kong, Singapore, Mongolia and Sri Lanka, Fitch noted. “Higher U.S. rates could also feed through to local interest rate rises, which would most likely affect credit risks in most markets,” including China, Vietnam and India.

Back on the home front, NACM Economist Chris Kuehl, Ph.D., said the Fed’s May minutes weren’t particularly controversial, seemingly arriving at a consensus that there will be two more rate hikes this year, likely in June and September.

“There is less certainty about what happens next because there are some who are advocating for a slow pace and others who think a December hike should be on the table,” Kuehl said. “Most also agree that rates will continue to rise into 2019 at about the same pace as this year.”

-Andrew Michaels, editorial associate

Agile Businesses See Benefits From Tech Adoption

Keeping up with today’s technological advancements isn’t an easy feat, especially in the workplace where new tech requires a new routine. As small businesses learn to adapt, a new study found that outside pressure to become technologically savvy may do more harm than good.

In a collaborative global study, growth partnership company Frost & Sullivan and software company Pegasystems released Why Business Agility Matters in May, questioning small businesses’ readiness to incorporate technology, such as advanced software or IT collaboration, into their work environment. The study, conducted in August 2017, surveyed about 440 senior executives in several fields, including financial services and insurance, telecommunications and high technology, public sector and government, and retail. More than half of the respondents worked for companies with revenue under $500 million.

Respondents were filed into three categories: adopters, planners and nonadopters. The survey defined adopters as businesses that embraced agility, while planners worked toward business agility and nonadopters had no plans to do so. Agile businesses—those that welcomed technology voluntarily—experienced more customer satisfaction, product quality and business and IT collaboration.

“Over 80% of strategic adopters rate overall customer satisfaction and quality of customer experience higher than their industry counterparts,” the study stated. “This group is also empowered to maintain competitive advantage in their industry with the speedy launch of new products, services and innovation.”

Readiness, speed, transparency, dynamism and aversion were key traits of agile businesses. When businesses lack executive sponsorship or have insufficient support, the likelihood of becoming agile is quite slim, respondents noted. A lack of experience and cost-to-reward ratio were also linked to nonadopters.

-Andrew Michaels, editorial associate

Mexican Corporates Credit Implications Depend on NAFTA Outcome

Amid the ongoing North American Free Trade Agreement (NAFTA) negotiations, Mexican corporates are finding ways to adapt to the current economic climate. So far, credit impacts are minimal but could take a negative turn if NAFTA talks end with its discontinuation.

According to a Fitch Ratings report on May 16, corporates have spent the past decade distributing capital through acquisitions—an effort that protects their credit quality and proved effective last year. NAFTA negotiations began in 2017 at a time when borrowing was “robust” but “competitive” in Mexico. If NAFTA dwindles, Fitch said, the sectors most at risk are retail, real estate, transportation and energy.

“The effect on individual issuers, however, will vary on factors, including what portion of their production facilities are overseas, particularly those that are in the U.S., and the effectiveness of their debt and cash flow currency hedging,” Fitch noted.

NACM Economist Chris Kuehl, Ph.D., said some kind of NAFTA deal is close, citing four possible outcomes for the agreement between the U.S., Canada and Mexico. The first “quick but partial” option would focus on the automotive sector, while the second option would include extending the deadline beyond May 17 into late summer. Kuehl described the third option as a continuation of “hyperbole and drama.”

A “total rewrite” is yet another option but probably the least likely since it’s not supported by Canada or Mexico, he said.

“It has been the stated goal of the Trump administration that a new deal be in place by the end of the year and there needs to be time for Congress to get in the game,” Kuehl said. “The odds right now seem to favor option two, with the assertion that deals on automotive and agriculture be promulgated.”

-Andrew Michaels, editorial associate

Oil Prices Grow Amid US’s Iran Nuclear Agreement Pullout

Oil prices reached a three-and-a-half-year high on May 17, fueling concerns of a narrowing supply that followed U.S. President Donald Trump’s decision to withdraw from the Iran nuclear agreement last week. In comparing the latest CNBC report with a Reuters report in March, oil prices rose about $10 a barrel in less than two months to $80, with another increase predicted in the foreseeable future.

“We could see oil prices in July when demand is high … several dollars higher than it is,” Dan Yergin, energy analyst and IHS Markit vice chairman, told CNBC’s “Squawk Box” on May 16.

Since Trump’s announcement, many economists are anticipating a decline in Iranian oil exports.

According to a separate CNBC report, global demands for crude oil and refined products grew over the past few months, while the larger oil-producing countries, such as Iran, Venezuela and Angola, slowed production. 

Price increases are also impacting countries other than the U.S., including France, where CNBC stated a multibillion-dollar gas project is in jeopardy if a waiver isn’t secured from U.S. sanctions. As the head of Marco & Commodity Research at Swiss bank Julius Baer, Norbert Rücker told CNBC that there’s a lot of “geopolitical noise.”

“Supply concerns are top of mind after the United States left the Iran nuclear deal,” Rücker said in the report.

-Andrew Michaels, editorial associate

Small Business Profits Hit 45-Year High

Profit growth among U.S. small businesses struck a 45-year high in April, as the latest National Federation of Independent Businesses (NFIB) Economic Trends Survey showed a drop in poor sales and bump in its Small Business Optimism Index. The index increased only slightly by 0.1 points over March to a score of 104.8.

From a credit perspective, the NFIB study concluded that 50% of survey respondents “were not interested in a loan,” scoring one of its lowest readings in nearly a decade. Despite rising interest rates from the Federal Reserve, getting credit hasn’t been an issue in years—a mere 2% reported financing problems and 5% reported loans being “harder to get.”

“Never in the history of this survey have we seen profit trends so high,” Juanita Duggan, NFIB president and CEO, said in the May 8 report. “The optimism small business owners have about the economy is turning into new job creation, increased wages and benefits, and investment.”

Sales numbers not only exceeded expectations for April, but are also expected to increase in the foreseeable future, according to 21% of respondents, most notably in construction and manufacturing. As sales increased, so did spending. The majority of respondents said they directed spending toward new equipment, while others purchased new vehicles or improved or expanded their facilities.

Investment is promising in the construction and manufacturing sectors, the report noted, where 38% and 32% of respondents, respectively, predict growth in the coming months.

“There is no question that small business is booming,” NFIB Chief Economist Bill Dunkelberg added in the report. “Consumer spending, the new tax law, and lower regulatory barriers are all supporting the surge in optimism across all small business industry sectors.”

-Andrew Michaels, editorial associate

Trade Tariffs Halt U.S. Small Manufacturers’ Hiring, Investments

The ripple effect of the U.S. administration’s trade tariffs has struck the country’s small manufacturers, Reuters reports, as they scale back hiring and investments due to rising import costs.

Following President Donald Trump’s implementation of steel and aluminum import taxes in March, Reuters began interviews with several small- to mid-sized manufacturing executives to hear their thoughts.

The report, released May 4, revealed a chain reaction of sorts: The tariffs are increasing raw material costs for manufacturers and creating supply delays, leaving manufacturers unable to compete with foreign companies. Now, manufacturers are proceeding with caution before making any decisions about hiring new employees or investing in future projects.

Among Reuters’ interviewees was president Mike Schmitt, of the metal fabrication company Metalworking Group in Ohio, who said that the company was hoping to spend roughly half a million dollars on equipment and new hires in 2018. However, contracts were repriced and renegotiated after the material price hike, so the plans were pushed back to 2019.

“While these manufacturers lauded the administration’s push to make U.S. businesses globally competitive through measures such as the tax overhaul and a deregulation drive,” the report said, “they complained that the steel and aluminum tariffs along with the escalating trade spat with China were undercutting those benefits.”

The latest results from the CIBZ Small Business Employment Index (SBEI) concurred with the Reuters report, showing a 0.21% decline in April hires, according to Business Wire. Surveying thousands of companies with 300 or fewer employees in the U.S., the SBEI showed more than a quarter of small businesses decreased their employee count after a significant boost in March hires of about 1.4%.

In a press release, CBIZ Employee Benefits’ Executive Vice President Philip Noftsinger said small business hiring usually increases in April.

“Small businesses may be hitting the pause button ahead of seasonal spring hiring,” Noftsinger said in the release. “… We’ll look toward the later spring months to create any consistent message of a slowdown in the labor market.”

-Andrew Michaels, editorial associate

Global Average DSO Hits 66 Days, Expected to Increase in 2018

Trustworthy relationships between companies and customers have boosted the global average Days Sales Outstanding (DSO) to a 10-year high, which credit insurer Euler Hermes recorded at 66 days in 2017. According to its May 5 report, Euler Hermes predicts the global average to reach 67 days by the end of this year.

The annual review and forecast was based on a sample of 20 sectors and 36 countries. Although both business-to-business (B2B) and business-to-consumer (B2C) are reviewed, Euler Hermes said DSO among B2Bs was higher, particularly in aeronautics, automotive, construction and electronics. The report showed DSO expansion at a high of at least 85 days in the electronics, machinery and construction sectors.

“The global recovery distracts attention from DSO and hence comes with a significant deterioration in payment terms,” Euler Hermes Chief Economist Ludovic Subran said in a press release. “We expect global average DSO to rise again … due to confidence in the economic and financial outlook fueling this dynamic.”

Euler Hermes’ report explains that companies are trusting their customers to eventually pay, therefore, easing payment terms. Companies that were once stringent during the economic struggle in 2007 and 2008—DSO at 60 days in 2008—are now giving customers more time to pay. In 2017, one in four companies were paid in less than 31 days, while one in four were paid after 90 days.

“Now that the world economy is doing better, companies tend to trust their clients to pay them—despite the increase in insolvencies of large companies,” the report states.

During an assessment of DSO from country to country, Euler Hermes found the U.S. was among the seven strongest countries at no more than 51 days, the lowest DSO recorded in New Zealand at 43 days. DSO was more relaxed in France (74), Italy (83) and China (92). A quarter of companies in China have a DSO of 136 days.

-Andrew Michaels, editorial associate

Second of Four Predicted Rate Hikes Expected in June

With rising inflation underway, investors are anticipating yet another interest rate hike from the U.S. Federal Reserve in June—the second of as many as four increases that are predicted in 2018.

The Fed’s first lending rate increase came in March when it grew by a quarter percentage point from 1.5% to 1.75%, Reuters reported. Borrowing costs began increasing in December 2015, only to be lifted once in 2016 and then three times in 2017. Movement is currently anticipated in June and September, according to CNBC, with a 37% chance of a fourth increase expected before the year is out.

“The market understands that more than four is quite unlikely,” New York Fed President William Dudley said in the CNBC report, “because that would no longer be a gradual path of monetary policy tightening. It would also imply that the Fed was going to tighten by 50 basis points at a press conference meeting or go meeting to meeting. So, I think that the market sort of sees three as possible and four as possible, but five or six seems to be quite unlikely.”

NACM Economist Chris Kuehl, Ph.D., said the Fed’s desire to reach a 2% “normal level” of inflation was sought out over the last decade. Too much and too little inflation is damaging to the economy, he said, while finding a middle ground “greases the economy’s wheels.”

“Deflation is what mired Japan in slow growth mode for over two decades,” Kuehl noted. “The U.S. was heading that way for a while as well. When there is no inflation at all, there is no room for producers to raise their prices and make more money. There is, therefore, no ability to buy new machines or hire people.”

CNBC stated that the Fed is expected to make an announcement on Wednesday, May 2 at 2 p.m.

-Andrew Michaels, editorial associate