Tuesday, May 15, 2012 by
As would be expected, FCIB’s annual International Credit and Risk Management Summit kicked off with a lot of talk of the problems in the European Union. Notably, doomsday predictions about Spain and of a potential Greek exit from the Euro—which have been covered in NACM's eNews and blog—were front of mind. Also of particular interest during the conference, currently ongoing in Hamburg, was talk of conditions in the Middle East.
During a discussion looking at the region, and trade therein, one year removed from the Arab Spring uprisings, panelists surprised some in the crowd by outlining a perhaps overlooked fact about Middle East-based businesses and their proprietors amid the many perceived cultural differences: that there are actually more significant commonalities with so-called “traditional” businesses in the West than often depicted.
“We have exactly the same types of worries; we have the same concerns about the future, our kids, etc.,” said Ferda Efe, a senior director with Ashland Specialty Ingredients in Istanbul. “They’re really not that different from the rest of the world. We are all one world now, in the end.”
Additionally, panelists poked some holes in notions that Middle Eastern businesses, officials, salespeople or credit professionals are so culturally unique for taking the time to build the trust level of a relationship, having distaste for when someone overpromises but under-delivers and being dogged in negotiations. Among those three characteristics, are any of these things an American or European credit professional would NOT want?
Similarly, a presentation on Islamic banking laws/Sharia law compliance by Dr. Salman Khan generated interest, if not controversy at times, by showing that the traditional banking methods and products are similar. In fact, to become Sharia compliant with a credit agreement, a traditional product is held up as the model and stripped of things that are not considered compliant (the ability to make money off interest, things considered not in “good faith” or ethical, etc.). Additionally, Khan alleged there was “little meaningful difference between the conventional banking industry and the Islamic banking industry at present.” He characterized the differences as “cosmetic, theoretical and superfluous.”
“What has happened in reality, the facts are thus: the implantation in practice has diverged from theory to a large extent,” he told FCIB delegates. “You have a Sharia-compliant, not Sharia-based, industry paradigm. The Islamic banking and finance industry operates almost entirely from infrastructure designed for the conventional banking system. There has been no development of a tailored system. The point is Islamic banking has to fit into the platform, however that is even really possible.”
Brian Shappell, CBA, NACM staff writer
Thursday, May 10, 2012 by
Through this week’s elections, the Greek populous and opposition politicians sent their anti-austerity message and thumbed their noses at those holding the purse strings behind the European Union and International Monetary Fund’s bailout of the debt-addled nation. Other members of the EU, mostly northern, aren’t taking it lightly—and the response could lead to even greater uncertainty.
Railing against the austerity demands allowed by incumbents, neither of the two major parties—New Democracy and Pasok in Greece—were able to come close to winning a minority. This situation will cause heightened uncertainty (disruptions) in the nation and beyond over the coming weeks. The politicians who made the gains railed against any ideas for alliances and have publicly voiced rhetoric about desiring more favorable bailout conditions.
Those footing the bill, notably the Germans, aren’t amused and have answered with thinly veiled threats about delaying the planned bailout payment to Greece scheduled for today (Thursday). Worst-case scenario has Greece falling out of the Euro by some time this summer, NACM Economist, Christ Kuehl noted.
But what is the big impact on the credit industry? Perhaps the answer, for the short-term, is to do nothing except keep an eye on things very closely in the coming days and weeks ahead. Remember the basics: know your customer.
Ben Deboeck, country and sector risk coordinator for Ducroire Delcredere (keynote speaker at FCIB’s International Credit & Risk Management Summit in Hamburg from May 13-15), noted that Greek unrest rarely comes as a surprise anymore. Deboeck pointed out that bond markets barely moved.
“Nothing too surprising happened yet,” the Belgian-based Deboeck told eNews. “So, immediate consequences of the Greek elections, as well as French elections, are rather limited I'd say. More important than Greece/France is probably what is happening in Spain, with the government finally moving towards action to tackle the banking problem”.
Going forward, however, Deboeck admits the impact of sustained volatility or an increase in volatility could affect consumer and business confidence and therefore eventually, credit.
- Brian Shappell, CBA, NACM staff writer
For more information on next week’s International Credit & Risk Management Summit, including Deboeck’s keynote speech, visit www.fcibglobal.com. Additionally, check out the NACM blog and future editions of eNews for on-site coverage from the event.
Monday, May 7, 2012 by
A common theme that emerged in nearly every session at this year's FCIB International Credit Executives (I.C.E.) conference was the ever-expanding role of the credit department. From assessing risk beyond accounts receivable, to implementing bold new productivity enhancements, credit professionals seem to be asserting themselves into numerous other functions of their companies, and presenter after presenter at the conference seemed to prove it.
Held from May 2-4 this year at the luxurious Westin Michigan Avenue in Chicago, I.C.E. offered attendees the chance to hear cutting edge, in-depth economic presentations from an elite set of presenters, along with worthy insights from professionals that shared their day-to-day responsibilities and concerns. Chief among the presentations that focused on the mutual exchange of practices between credit professionals was a productivity enhancement roundtable, moderated by honorary life member of FCIB David Marsh, CICE, CBF.
The session offered four individual credit professionals a chance to discuss specific changes they made to increase productivity in both their departments and their companies. Susan Fattore, ICCE, corporate credit manager at Heico Companies, talked about consolidating her company's 20-plus accounts receivable operating systems. After six to eight months of preparation and three years of implementation, Fattore noted that the single system now in effect improved efficiency for her and credit staff at Heico's numerous other entities. "There's no human error and it promotes better communication among the credit managers because they know which of them share the same customers," she noted. "It gives users access to information that they didn't have prior to the system."
Kelly Bates, FCIB vice chairman and director of global credit & collections at Chiquita Brands, Inc., talked about her efforts to shift her company's global credit function to a North American headquarters. Inconsistency among credit and collection practices drove Bates to push for a more centralized credit function. "At first it was rejected, but I think it was a process of elimination," she noted. "It evolved into the right decision." Now, Bates noted "our best practices were tweaked into global policies and procedures. The reporting structures are consistent and everything is managed out of our department."
Implementing a new, similarly consistent bolt-on system that focused on collections was the focus of Larry Durrant, CCE, ICCE of UPM Kymmene, Inc.'s presentation. "We had so many systems and so many practices that we needed standardize," said Durrant, noting that choosing the right system for the company was an intensive process that involved the IT, credit risk management and purchasing departments. Nonetheless, the results have offered a great deal of user flexibility. "They can pull their statements any time they want, they can track their orders and they can get their invoices," he added. "They can view their account any time 24/7 and see what's paid and not paid."
Finally, Rick Hayes, ICCE, senior manager of worldwide credit & collections at Viskase Companies, Inc., recalled his experiences at a prior company eliminating redundancies in their order management process. "There was a trade credit operation and then there was a long-term customer financing operation, and the two were throwing a lot of data back and forth," said Hayes. "There was a lot of time spent looking at the same things." By bringing in new analysts, Hayes was able to reduce deductions, headcount and take the company, as he put it, to a point "where we're spending most of our time on fire prevention and much less time on fire fighting."
After that, attendees gathered for a networking dinner and reconvened the next morning for two especially relevant presentations, the first, a global economy forecast from NACM Economist Chris Kuehl, PhD, and the second, a "Doing Business in the BRICs" panel, this time moderated by Kuehl. Previous panelists Fattore and Hayes joined Luis Noriega, ICCE, vice president of JPMorgan Chase Bank, N.A., and Norman Zusevics, credit risk manager at Shure, Inc. in a lively, attendee-led discussion of selling concerns in these economically hot countries, as well as many others beyond the scope of the presentation's title.
Between the diversity of the program and the wealth of networking opportunities that punctuated each presentation, the 2012 I.C.E. conference served as a model growth tool for credit professionals, offering answers to attendees rather than just rehashing their problems.
For more information on FCIB's educational opportunities, visit www.fcibglobal.com. And don't forget to look for pictures from this year's I.C.E. conference in the upcoming June 2012 issue of Business Credit.
Jacob Barron, CICP, NACM staff writer
Thursday, May 3, 2012 by
Although lackluster manufacturing statistics out of China and its top trade partners isn’t necessarily reason for alarm, as noted in last week’s eNews by economists Chris Kuehl, PhD and Ken Goldstein; market watchers and credit analysts remained somewhat puzzled at often contradictory data coming from the Asian powerhouse.
While the Chinese government’s official Purchasing Managers Index was listed at a 13-month high in April at 53.3, it contradicts indexes, including one conducted independently by HSBC that finds the manufacturing PMI closer to 49.3 for the same period. It is the ninth straight decline noted by HSBC of private Chinese companies, and the level falls below the proverbial Mendoza line dividing growth and contraction. Fitch Ratings pointed out this very problem, and the issues/uncertainty it creates for investors and the credit profession, this week.
The U.S.-based ratings agency believes the divide can be chalked up to private sector companies experiencing a significant disadvantage in the area of credit availability when compared to its public sector competitors. Fitch noted the ‘official’ [government] PMI figure reflects positive returns from large state-owned enterprises in particular, whereas the HSBC index is almost exclusively comprised of information from private sector entities.
“The divergence of the indicators may reflect differential terms of access to credit, with the contracting HSBC index representing the tighter credit conditions for private companies, whereas the expanding official index reflects China’s large state-owned entities, which enjoy support for growth and expansion and have easier access to funding,” Fitch said in its statement. “This is perhaps not surprising from a credit perspective when considering a centrally directed economy trying to integrate a growing capitalist business sector.”
While perhaps not a “surprise,” the continued uncertainty continues to be a source of frustration among investors and credit-granters.
Brian Shappell, CBA, NACM staff writer
Thursday, March 29, 2012 by
Statistics to be released tomorrow outlining results of the Credit Managers’ Index (CMI) for March could give credence to an economic recovery that is well-founded and real.
It appears the story of the latest index will be one of improvements in the area of unfavorable factors. This is expected to be particularly noticeable in a pair of subcategories: accounts placed for collection and disputes. Dollar amount of customer deduction is also a category expected to track at better levels than most of the last year, as well.
Perhaps a big part of the positive momentum is that the weeding out process, so to speak, has almost run its course from a business standpoint. NACM Economist Chris Kuehl, PhD, said most of the weakest, poorest run companies have “gone by the wayside,” which has afforded opportunities for the survivors.
“The fact is that, during a boom period, there are many companies surviving and even thriving in spite of themselves,” Kuehl said. “They are not all that well run and succeed mostly because everybody is succeeding in the boom.” He added that it is now the point when the stronger competitors are able to finally reassert themselves and get the pricing they need to succeed long term.
Check back tomorrow at NACM’s website (www.nacm.org) for the full statistics and analysis of this month’s CMI.
Brian Shappell, CBA, NACM staff writer
Thursday, March 15, 2012 by
Although officials seem eager to trot out headline after headline of positive economic news, the U.S. economy isn’t out of the woods yet. In fact, the U.S. recovery could be derailed by a number of factors, and one economist at yesterday’s FCIB International Profit Summit held in New York described caution about the American economy “well-founded.”
In his keynote address, Byron Shoulton, vice president and international economist with FCIA Management Co., Inc., noted that despite the nation’s “gradual” recovery, a number of factors could erase many of the gains made recently in employment, manufacturing and consumer confidence.
“The U.S. economy has shown glimmers of improvement over the last few months,” said Shoulton. “Job creation appears to be buoyant, with something like 200,000 jobs per month being produced here in the U.S., and growth in manufacturing and even existing home sales are starting to pick up. Car sales, for example, have been higher the last four months than they have been for three years, and even the banks, while they’re concerned with Basel III and the Dodd-Frank requirements, are showing a bit more select willingness to lend.”
(Note: More coverage of FCIB's International Profit Summit available now at the FCIB Twitter page -- under the handle/moniker "FCIB_Global"...as well as Thursday afternoon in the lead story of NACM's eNews at www.nacm.org and in the May edition of Business Credit Magazine, available at the end of the month).
Jacob Barron, CICP, NACM staff writer
Tuesday, February 28, 2012 by
Expect to see continued gains from the February Credit Managers’ Index (CMI) when it’s released Wednesday morning. In addition to solid growth in the overall index, certain key categories received a boost and provided another dose of confidence to the still leery American economy.
“The mood of the country could best be described as cautious and perhaps a little encouraged as far as economic growth prospects are concerned,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). The question mark stems from the last month’s sudden spike in oil prices and its potential impact on the price of gasoline. Kuehl noted that in the past this kind of leap was enough to send the economy hurtling back into recession, but thus far the consumer seems to be taking it in stride.
How long the even temperament of consumers will last is anyone’s guess, but if the threat of high prices turns out to be a temporary one, expect both consumers and businesses to breathe heavy sighs of relief and return to focusing on the good news that has so far dominated the start of 2012. “There has been good news on the job front, better demand numbers, better growth numbers and better numbers in the CMI,” Kuehl added.
Sales numbers also grew in February, which signaled future improvements in the index’s unfavorable factors in the months to come. “An expansion in sales allows companies to catch up on their debt and improve their overall credit standing,” said Kuehl. “This bump in overall business activity is a precursor to additional expansion.”
The full CMI report for February 2012 with commentary, tables and graphs will be available Wednesday. CMI archives may also be viewed here.
Jacob Barron, CICP, NACM staff writer
Wednesday, November 30, 2011 by
The Credit Managers' Index, to be unveiled Wednesday afternoon, is set to show the overall index was largely unchanged over the last month. But, given that September had been seen as a major success, that’s not necessarily such a bad thing. What is a bad thing, even if it’s likely to be short-lived, is the noticeable drop in sales levels.
Perhaps the quickest, most accurate way to describe the to-be-unveiled CMI is to use just two words: mixed bag.
“If one is of a more pessimistic bent, there is the continued high rate of unemployment, the struggles in the housing sector and the sense that nobody in the political realm has a clue what to do about any of this,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). “There is the mess in Europe, the gyrations in stocks and consumer polls that suggest that vast numbers of people are in bed with the covers pulled over their heads. If you tend toward optimistic, there is something for you as well, especially recently.”
Perhaps the reason for those optimistic lies in the stability in recent months for the manufacturing sector, which is said to continue in November and reflect strength found in May, before a disconcerting summer dip. Additionally, market-watchers may be licking their chops on the news that Black Friday and Cyber Monday sales figures were up significantly. However, those numbers won’t actually show up in the CMI statistics until next month Without the holiday sale/marketing-inspired shopping numbers, sales will be off quite a bit in November and are said to track at the lowest level of the year.
Most economic indicators were pretty stable, aside from the dwindling number of bankruptcy filings. Kuehl, who prepares the CMI, notes the feeling is most companies that were going to file or fold have already done so. Granted, U.S. businesses haven’t purged all financial issues, “but, going forward, many companies will see opportunities to gain market share from those competitors that have left the scene and that strengthens their ability to gain momentum in the coming year,” the economist said.
(Editor’s Note: The November CMI will be release through various sources this afternoon. Check back at www.nacm.org in the home page’s news scroll to get all of the November CMI statistics and analysis).
Brian Shappell, NACM staff writer
Monday, October 31, 2011 by
NACM's Credit Manager's Index for October, unveiled Monday, showed little in the way of building about gains reported in September's index...but, importantly, it also showed no signs of retreat.
There was a slight reduction in the index of favorable factors, but the index of unfavorable factors came just a little bit closer to expansion territory. Most economic indicators has been reasonably positive over the past few weeks and seem to be pointing to better months to come. The October CMI index does nothing to dispel this notion, although the slower pace of progress continues to forshadow tepid growth, recovery for any but a handful of sectors.
“The latest data on the expansion of the U.S. economy in the third quarter reinforces the notion that conditions have started to improve, and the retail data thus far has been more encouraging than not,” said Kuehl. “If one looks at the steady rebound in the financial stability of the business community over the last month, there is some reason to assume that conditions will improve even more in the last two months of the year.”
The manufacturing sector continues to gain momentum, with the favorable factor indext surging to levels not seen since May. Service sector performance, meanwhile, was weaker than many had expected given the decent retail performance noted in the last few months. The most startling decline was in sales, though there still was palpable improvement in unfavorable service sector factors, going forward.
For the full write-up and charts for October's Credit Managers' Index, visit http://web.nacm.org/CMI/PDF/CMIcurrent.pdf. Brian Shappell, NACM staff writer
Tuesday, October 11, 2011 by
In what has potential to emerge as a late 2011/early 2012 buzz topic, another state has moved to toughen the process for debt-saddled municipalities to declare for bankruptcy protection.
California Gov. Edmund “Jerry” Brown this week signed Assembly Bill 506, which will require municipalities seeking the ability to file Chapter 9 to either declare a fiscal emergency or document efforts to negotiate with creditors prior to such a filing. Though promoting it as otherwise, the move appears to be a thinly veiled effort to pump the brakes on the slowly emerging trend of municipalities considering Chapter 9 as an increasingly viable option to beat financial woes. Pennsylvania promoted somewhat similar legislation over the summer.
Brown said the legislation “puts in place reasonable steps for local governments to take before filing bankruptcy…let’s be clear, this bill does not prevent a municipality from declaring bankruptcy or even throw roadblocks in its path.” He continued the goal was to find “alternative, less drastic solutions” then filing.
The municipal bankruptcy issue has become an increasingly hot one for businesses/creditors that do significant selling on terms to municipalities, especially ones now struggling, amid the ongoing financial crisis and increasing entitlement issues. This year, about a half-dozen municipalities filed for protection under Chapter 9 with the latest of which emanating out of Central Falls, RI. Jefferson County, AL narrowly avoided it thanks to a $1 billion renegotiation approved by debt-holders tied to a sewer rehab project, and Harrisburg, PA continues to weigh what appear to be a very narrow set of options as creditors for a failed trash-incineration project haven’t been so flexible.
Bruce Nathan, Esq., of Lowenstein Sandler PC, who is presenting an NACM teleconference Wednesday on the municipal bankruptcy issue, listed skyrocketing health care and pension obligations as well as lower revenue and construction-related debts both tied to the ongoing economic downturn among top reasons for the growing trend. He noted that specifically in California, the state capital city of Sacramento alone has unfunded retiree health care liabilities of $245.6 million and that the bankruptcy filing in the city of Vallejo is among the largest in U.S. history.
For more information on or to register for Wednesday’s teleconference on this topic and how it will affect credit managers, click here. Brian Shappell, NACM staff writer
Thursday, September 29, 2011 by
In the latest Credit Manager’s Index (CMI), now available on the NACM website’s main page, there seem to be rays of hope not seen in months for the economy and the credit industry.
NACM Economist Chris Kuehl, PhD, noted the soon-to-be-released index finds improving September levels for the overall index (53.8), sales (61.4) and favorable factors level (59.9), the latter of which hits its best mark since April. This was all welcome news coming off an abysmal August CMI downturn.
“For the past few months, there was a slow deterioration of key credit conditions and many were expecting to see more declines this month. Instead, the combined index returned to the levels set in July,” Kuehl said. “The overall sense at this stage is that there is some life left in the economy. There is still not enough evidence to be convincing, but the most chronically optimistic could say that a recovery is at hand. The data, however, is sufficient enough to make the case that the precipitous plunge predicted for the end of the year may not be taking place after all. Not that there is no threat of sinking back into recession, but a deep plunge seems more and more distant.”
It appears a big part of the setback in August can be laid squarely at the feet of federal lawmakers and their partisan brinksmanship tactics.
“There is abundant evidence that business activity is ramping up again from the drops in August, and it is looking more and more like much of the summer slowdown was prompted by all the political infighting,” said Kuehl. “The fact that August showed such a pronounced dip suggests that there really is something to that concern.”
The full CMI report and statistical analysis can be found at the NACM website (www.nacm.org) in the #1 position on the main page's information/news scroll.
Brian Shappell, NACM staff writer
Thursday, September 22, 2011 by
At FCIB New York International Roundtable Wednesday statistics and anecdotal evidence seemed to question America’s ability to compete with other nations as key indicators clearly appear to be trending in the wrong direction.
Speaking on short-term growth prospects, Federal Reserve Bank of New York Vice President Matthew Higgins survey featuring a collective of top economists predicts upcoming gross domestic product growth for the United States at 2.2% as it continues to struggle with high unemployment and debt. It's well below other emergeing economies.
Long-term, the United States is not faring as well as many would have expected in the world rankings of key areas, especially those related to infrastructure and education. “The U.S. already is falling out of the ranks of leading nations in areas key to growth,” he said.
Another area where the United States is lagging, as illustrated in a subsequent FCIB Roundtable session, is within accounting standards. As the United States, more specifically the Security & Exchange Commission, goes back and forth regarding the International Financial Reporting Standards (IFRS), domestic businesses could find themselves in a tough spot no matter which side on which federal regulators fall, speaker Charles Blank suggested. Blank, senior manager at Grant Thorton LLP, noted that a number of nations have already moved toward the standard, developed by the International Accounting Standards Board to try to assure more uniformity and transparency among businesses throughout the globe.
And, in paraphrasing a comment from now former SEC Commissioner Kathleen Casey, the U.S. could very well affect its global competitiveness if it continues to “kick the can down the road.”
For more on the topic, view the lead story in this week's NACM eNews, available on the NACM website (www.nacm.org). More coverage of the FCIB Roundtable will be feature on the NACM blog as well as in subsequent editions of NACM eNews and Business Credit Magazine.
Brian Shappell, NACM staff writer
Tuesday, September 6, 2011 by
(EDITOR'S NOTE: Solyndra LLC officially filed for Chapter 11 in U.S. Bankruptcy Court in Delaware early Tuesday. Story originally posted on 9/1/11) As predicted in NACM’s eNews more than a month ago, “green” business has become far from gold, especially where solar is concerned. Just last Monday, NACM covered the SpectraWatt Inc. Chapter 11 bankruptcy filing. One day later, yet another company announced it was with certainty heading down the same path.
Solyndra LLC, a solar energy products firm which gained notoriety during well-publicized visit there by President Barack Obama in 2010, announced plans to file for bankruptcy protection as early as next week. It marks the third solar in a month to official file for or announce Chapter 11 in the last month, with more potential struggling firms in the pipeline. Like SpectraWatt shortly before them, the company’s high-tech solar product offerings had become “noncompetitive” as Asian manufacturers, especially those based in China, continue to deeply undercut the firm and its competitors on pricing and overhead. Even significant financial assistance in the form of federal programs could not help enough. The problems are fueling speculation about widespread, near unrecoverable problems emerging in the solar business niche. More than 1,000 Solyndra employees are expected to be out of work almost immediately as a result of the company’s proverbial white flag.
As previously noted, it’s a prediction Credit Management Association's Mike Joncich make in an interview for stories in NACM's eNews and. the new issue of Business Credit Magazine. He noted the industry's problems go deeper than just an economic downturn/slow recovery and include serious over-saturation:
"There was over-investment in those industries [during the boom], and a number of companies are going to fall out that didn't have the right ideas or right business models to survive,” said Joncich. “Credit managers have to be aware of such phenomena."
Earlier this month, Massachusetts-based Evergreen Solar filed for Chapter 11 bankruptcy protection and, months before that, Maryland-based BP solar operation halted its activity in favor of relocation abroad to save costs.
Brian Shappell, NACM staff writer
Thursday, September 1, 2011 by
The Credit Managers’ Index (CMI) for August hasn’t been this low in more than a year—falling from July’s 53.9 to 52.7—and is now tracking at levels last seen in 2008–2009. “The news this month is not good and comes as no shock to anyone who has been tracking the data coming from all directions,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). If there is any good news, it is that the combined number has not yet fallen below 50, the threshold separating contraction from expansion. But the index of unfavorable factors fell to contractionary levels. The last time the unfavorable index was this low was in the 2009 period when the recession had just started to show signs of easing. The fact that the data was not worse this month than it was is probably worth noting as most of the other indices released in the last few weeks suggested there might have been an even steeper decline.
Kuehl said the best news in this month’s data is found in the favorable index. Here the data barely changed, going from 58.9 to 58.1. This is still much lower than most of the last year, but the precipitous collapse that took place in the companion part of the overall index did not take place here. There was even some improvement in the amount of dollar collections, while declines in the sales category were slight, from 60 to 59.2. “The most interesting aspect of the data is that extension of credit actually improved in the middle of all this gloom and doom. The fact that favorable factors have improved slightly or remained stable provides some hope that conditions will improve in the coming months,” said Kuehl. “There is still demand and business progress, but the crisis in the overall economy has been putting pressure on the finances of many companies.”
Upon examining the unfavorable factors, it is striking that the problem is primarily one of sudden business stress and failure. The biggest declines were in accounts placed for collection and dollar amounts beyond terms. These are signs of real distress among customers, but it is equally significant that filings for bankruptcies did not increase dramatically and there was not an acceleration in the rejection of credit applications. The divergence in these factors is particularly interesting and informative. While speculative, one could look at this data and conclude that companies got in trouble in the last month or so because of a sudden drop in business after anticipating better times. Evidence from earlier in the year showed that companies across the board were anticipating better days in the second half of the year and many were trying to prepare for this with expansion plans. This anticipated economic growth did not come to pass and these companies swiftly got into trouble.
If there is a small silver lining to all this, it is that the level of bankruptcies has not risen at the same pace. That means one of two things. If the economy gets back in gear in the next couple of months, companies struggling now will have some time to gain control of their budgets and be able to avoid sliding further toward collapse and ultimately bankruptcy. If the economy doesn’t catch fire to some extent in the near future, the bankruptcy rate will start to climb and the index will reflect it. The other mildly encouraging piece is that the rate of rejection for credit applications was not markedly different from last month. There is still credit available to customers that are bucking the trend. This is not like the situation at the end of 2008 when the entire credit system came screeching to a halt and even the best of companies were denied access.
The data this month is mixed but with a decidedly downward slope. The CMI remains in expansion territory, but is holding on to that status by a thread. There may be another month of essentially flat growth in store, but after that the economy will begin to tilt in one direction or another. If there is no real improvement in some of the fundamentals, the index will reflect continued deterioration. There is some resilience evident in the index numbers as the favorable categories are holding their own. The sectors that will drag the whole index further under include those that are most dependent on the decisions that companies made when they were expecting some solid economic growth by now. The credit requested made sense at the time, but now there is some serious concern as far as what happens next if the growth rate remains mired in the predicted 1% to 1.5% region.
The online CMI report for August 2011 contains the full commentary, complete with tables and graphs. CMI archives may also be viewed online.
Monday, August 29, 2011 by
The realities of a tough market for sustainability based products and services, which were all the rage during the late boom years last decade, continue to dampen the once rose-colored view on green business. Yet another blow to the so-called green products and services niche segment came last week as New York-based SpectraWatt Inc., a spin-off of Intel Corp. that had been based in Oregon until 2009, filed for Chapter 11 bankruptcy protection.
SpectraWatt officials said the company’s products, primarily high-tech solar cells, had become “noncompetitive” as Asian manufacturers continue to deeply undercut the firm and its competitors on pricing and overhead. Hurting matters for the company earlier this year was its unknowing receipt of defective components that were used in the production of its own products, which caused their value to plummet.
In the filing, SpectraWatt foreshadowed a slew of solar business failures by pushing for an auction to be held quickly, in less than one month, on its prediction that the market will be flooded with such solar product sales very soon. It's a prediction Credit Management Association's Mike Joncich make in an interview for stories in NACM's eNews ann the new issue of Business Credit Magazine. He noted the industry's problems go deeper than just a downturn/slow recovery:
"A lot of companies started up to participate in that sector—there was a substantial investment in green companies that are making the best of products that are energy- or resource-saving," said Joncich. "But there was over-investment in those industries, and a number of companies are going to fall out that didn't have the right ideas or right business models to survive. Credit managers have to be aware of such phenomena."
Also this month, Massachusetts-based Evergreen Solar filed for Chapter 11 bankruptcy protection. Despite receiving millions in federal and state grant dollars and tax incentives, the solar business has struggled mightily in the last two to three years. Earlier this year, it shut down a U.S. plant that employed more than 800 people and, like a Maryland-based BP solar operation before it, relocated abroad to save costs.
Brian Shappell, NACM staff writer
Thursday, July 28, 2011 by
The best that can be said about this month’s Credit Managers’ Index (CMI)
is that things did not get appreciably worse. The latest data suggest a third month of slump, and it appears the economy is languishing in a state that is not quite in crisis but which isn’t showing energy either. For the third month in a row, the overall index was slightly over 54. The fact that it went up by .4 is nothing much to cheer, as the overall index had been over 55 for the six months prior to May’s slip. “If there is anything to be somewhat encouraged by it is that manufacturing improved over the really down month last July, but at the same time there was weakness in the service sector that didn’t appear the previous month,” said Chris Kuehl, PhD, managing director of Armada Corporate Intelligence and economic advisor to the National Association of Credit Management (NACM).
Very little changed as far as favorable factors were concerned. Sales were essentially flat at 60—slightly down from 60.8—but that is a pretty solid sign given the declines noted in other areas. “It appears sales numbers have started to stabilize and are not that far from the highs reached a few months ago when they crested at 66.3,” said Kuehl. The biggest decline was in dollar collections—from 58.1 to 56.2. There have been other signs that collection activity has been slowing, which is consistent with the overall assessments of the economy of late.
“In comparing the CMI readings to other indices, it is apparent the economy has still not committed to either continued growth or a real decline,” said Kuehl. “There have been some positive signs from the latest set of leading economic indicators released from the Conference Board, but there have also been renewed signs of distress as far as consumer confidence is concerned. Not surprisingly there is a sense that much has stalled in the economy as uncertainty has been the rule of the day.”
Unfavorable factors don’t show signs of increased stress and there isn’t a lot to suggest much panic—at least not yet. There was a pretty solid improvement—from 50 to 55.6—in the dollar amount of customer deductions. This was accompanied by modest improvements in the number of rejected credit applications, which improved from 50.9 to 51. There was also improvement in the number of disputes, from 49.3 to 50. “These are not major shifts by any stretch of the imagination, but at least they are not trending downward any further,” said Kuehl.
The overall index barely changed and the manufacturing and service sectors have simply swapped positions again as far as stress is concerned. The CMI numbers for the last three months show a general slowdown in business activity. There has been a slump in sales, a reduction in the number of new credit applications and a slowdown in the collection process. The economy is essentially stalled and the question is whether this is a reaction to something short term or a reflection of some greater underlying trend. The CMI data hint that the situation is temporary and related to uncertain factors gripping the economy. Much of this information is more anecdotal than anything that can be pinned onto hard data. The majority of the information from the banking sector suggests there is money to borrow. There is available trade credit according to most sources. Businesses are sitting on more cash than they have in a long time and most companies are not having issues paying their bills. The problem is that almost everybody is worried about contingency plans and are sitting back as they wait for something to change.
The demand needed is not there yet and nobody is quite sure why. The jobless situation is certainly a worry, but the fact is that 91% of the workforce is employed. They are nervous about spending and as long as they stay on the sidelines, the manufacturing community does as well. “There are few in the mood to leverage themselves until they have a better sense of what to expect from the government and from the economy as a whole. Everything is more or less in place for expansion, but there has been no trigger thus far and there is plenty to make people more nervous about the future,” said Kuehl.
The online CMI report for July 2011
contains the full commentary, complete with tables and graphs. CMI archives may also be viewed online
Thursday, July 21, 2011 by
A newly unveiled report from the International Monetary Fund (IMF) on China’s economy and monetary policy indicates there is good reason to believe the Asian nation’s currency is purposely undervalued and that it’s a problem that needs to be addressed for its long-term economic health. However, IMF analysts downplayed the significance of claims that a quick revaluation of the Chinese currency would lead to gains in nations where officials have been turning up the rhetoric about the perceived currency-based trade advantage.
IMF’s report centered around growing economic risk in China because of factors such as high inflation stemming from concern over food prices and supply as well as a real estate bubble and a decline in credit quality during the inevitable post-expansion era. IMF staff predicted China’s trade surplus actually is on the downswing and downplayed some firmly help speculation that the currency undervaluation, rather than factors such as longtime cheap wages and solid infrastructure for manufacturing, lead to the nation’s trade superiority from partners like the United States and Brazil. Still, IMF undervaluation “is holding back progress in areas that would help safeguard against near-term risks and promote economic rebalancing.”
Based on the findings, Armada Corporate Intelligence Managing Director Chris Kuehl, NACM’s economic advisor, speculated that, even if China quickly allowed its currency to appreciate by 20%, the United States likely would only receive a 0.5% bump in economic growth.
“The IMF report will not be welcomed by those who have made it their business to attack the Chinese for all the economic ills in the US,” said Kuehl. “The loss of manufacturing output to China over the last 20 years was only partially accelerated by currency policy. The biggest factor was China’s low-cost production capabilities, but these are the advantages that have started to erode in China.”
Brian Shappell, NACM staff writer
Thursday, July 21, 2011 by
(Updated) A U.S. Bankruptcy Court judge has approved a plan for Borders to liquidate its assets following failed attempts to find a buyer.
Stung as a deal fell through at the last minute, struggling book-retailer Borders announced early this week that a potential bankruptcy auction would not go forward earlier and that the end of former giant through liquidation essentially was unavoidable.
Borders, whose Chapter 11 bankruptcy filings were made in February, had submitted to bankruptcy court a previously-announced proposal from Hilco and Gordon Brothers to purchase the store assets of the business and administer the liquidation process. Borders presently operates 399 stores, which employ more than 10,000 people. As many as three dozen stores and 1,500 Borders jobs could be saved as negotiations still are ongoing for retailer Books-A-Million to those locations over, which was predicted by Wanda Borges, Esq., of Borges & Associates LLC, in an interview with NACM earlier this week.
"A notice has been filed that says 'the debtors received a bid from a non-insider to purchase the inventory, furniture, fixtures, equipment and leases for approximately 30 stores for which the debtors reserve the right...to seek approval in connection with the sale hearing...to be held on or about July 21, 2011...if the bid becomes a qualified bid.' This week could still prove interesting in the Borders case -- we may yet see a continued business operation," Borges told NACM.
Products such as the Kindle and other growingly popular electronic book-reader products hit significantly at Borders’ business model, and both they and top competitor Barnes & Noble have been trying to break into the more techno-friendly niche. However, both have been playing from behind, so to speak.
"The big box retailers have suffered from internet sales -- books are now becoming really an alternative to electronic media," said Credit Management Association's Mike Joncich about the shifting industry paradign. "Borders took a wrong turn while people like Amazon and Barns & Noble took a right turn to embrace the electronic delivery method." Joncich added that he believes "the age of the big box retailers may be coming to an end."
Foreshadowing of Borders' demise into bankruptcy gained steam through late 2010 and, increasingly, throughout January. The big-box book retailer intimated twice in as many months that it would have to delay payments to creditors and/or vendors in an attempt to bolster its capital position. In additions, it was widely reported that Borders was trying desperately to renegotiate terms with financiers at Bank of America and General Electric, among others. These developments all helped tank a stock that was already trading below $0.50. A late 2010 poll conducted by The Street found that more than two-thirds of respondents believed a Borders Chapter 11 filing was likely. At least one major publishing company reportedly stopped all shipment of books to Borders for a time, fearing this week's announcement was an inevitability that would arrive sooner than later.
Brian Shappell, NACM staff writer
Friday, July 1, 2011 by
As noted an eNews story last week (link at bottom of story), a small business trade association took issue with the U.S. Small Business Administration’s declaration that nearly 23% of government contracting dollars went to small businesses, calling the statistics “misleading.” In a subsequent interview with National Association of Credit Management, which occurred after this week’s eNews deadline, the SBA is firing back saying its statistics are legit.
The new federal “Scorecard” on small business contracts for FY2010 included statistical findings that nearly $100 billion, 22.7% of all federal contracting dollars, went to small businesses. However, the American Small Business League (ASBL) alleged that 61 of the top 100 recipients of the so-called small business federal contracts in 2010 were, in reality, large firms. The association calls the Obama Administration’s assertions “dramatically inflated” and alleges some of the “small business” recipients in FY2010 included Lockheed Martin, AT&T and Hewlett-Packard.
Michele Chang, SBA’s senior advisor for government contracting and business development, told NACM that agencies have gone through painstaking processes to ensure the data is “clean” and free of data anomalies such as “miscoding.” She said SBA stands by the 22.7% number originally released and said an allegation from ASBL that only 5% of those receiving federal contracts were, in reality, small businesses simply was “not true.”
“We have a comprehensive data-quality process that ensures accuracy,” said Change. “We’re confident this is the cleanest data we’ve had and the cleanest it can be.”
However, when asked if Lockheed Martin, AT&T and Hewlett-Packard received money classified under small business allotments, Chang said she “can’t comment on them specifically.” Change noted that, sometimes, a smaller firm awarded an ongoing contract sometimes expands and becomes a mid-sized or large business or gets bought out/taken over by a larger firm; but she placed the onus on the businesses to report the happenings to SBA within 30 days for classification. When pushed, Chang admitted none of the aforementioned businesses would have been considered small business for a number of years and again declined to comment on whether any were classified among small businesses for the purpose of this year’s scorecard.
The original eNews story posted Thursday is available here.
Brian Shappell, NACM staff writer
Thursday, June 30, 2011 by
The overall economic narrative in the country for the last month has been a question as to whether the latest run of bad economic news is a temporary phenomenon or is the harbinger of much worse to come. As many analysts have asserted that this is all attributable to the earthquake and “Arab Spring” as those who assert a double-dip recession is setting up for as early as the third quarter. Most of the economic community is somewhere in between, but much of the interpretation lies within the latest run of data, and the National Association of Credit Management
Credit Managers’ Index (CMI) for June suggests the temporary impact position has some validity.
The dramatic collapse reflected in the May CMI eased up a little in June. The index numbers bounced around, but these variations were obscured somewhat by the fact that the index as a whole was flat. Considering this month, it is very apparent that the devil is in the details. The overall index number was exactly the same as it was in May—54.2—but there were significant changes in the combined sub-indices for favorable and unfavorable factors.
“The most distressing news comes from the number of credit applications received and the amount of credit extended,” said Chris Kuehl, PhD, managing director of Armada Corporate Intelligence
and NACM economic advisor. Many businesses seemed more cautious in the last month or so. Part of this is still related to the issues in Japan and the fear of higher commodity prices, but there is also some growing unease regarding political games. “Few really believe that the United States would put $100 billion at risk in its securities market by not raising the debt limit, but there is intense fear that Congress will take the game too far and provoke a reaction in the markets before it reaches an agreement,” Kuehl said. “It appears this trepidation is affecting the willingness of businesses to expand and seek additional credit. The good news is that sales have risen during this period; in the past, expanded sales usually beget more credit requests and more credit extended.”
The bad news in favorable factors has been balanced out by good news in some of the unfavorable factors. Many signs of distress weakened a little. There were fewer disputes and fewer dollars beyond terms. While there were also fewer bankruptcies, there were still concerns about the number of credit applications rejected and the number of accounts placed for collection. “The overall impression is that there is some separation taking place between those companies that have weathered the last few years and those that had been counting on an economic breakthrough to help salvage their financial position. This is a development we’ve referenced before and the pattern is still evident,” said Kuehl.
As the recession gives way to a slow recovery there is a series of expected moves from the different players in a given industry sector. The market leaders start to anticipate the end of the downturn, and they are ready to ramp up and make an attempt to grab market share from rivals. The best-prepared companies make the first moves forcing competitors to try to keep pace. Some do, but others begin to falter as the business they expected to cover their investment fails to materialize. Right below the market leader category is the market challenger and they are looking for the weak link among the market leaders. They push with their own expansion schemes in an attempt to supplant them. If they calculate correctly they make the jump; if they do not they fall back and start to struggle with cash flow. Right behind the leaders and the challengers are the market followers and they are waiting to see how the bigger battles play out before they choose which approach to emulate.
“Right now the economic recovery is waiting for the market followers to make their move. This is the biggest category of business—and the most cautious,” said Kuehl. The CMI data suggest that this sector is starting to have more active sales activity, which generally provokes more credit demand. The majority of credit requests have been coming from either the most important customers with the best credit or from those struggling on the bottom tier. “When the middle levels start to get earnestly engaged is when there is potential for more general overall economic growth.”
The online CMI report for June 2011
contains the full commentary, complete with tables and graphs. CMI archives may also be viewed online