HOW DO WE RESPOND TO CURRENT INDUSTRY CHALLENGES?

- Norman Honas, Board Chair

Covid-19, supply chain issues, inflation, exploding credit limits, higher interest rates; it has been an interesting past three years. Covid relief funds that many businesses utilized are gone and a projected rise in bankruptcies in 2023 leaves the credit industry wondering, what do we do now?

Stick with the basics of credit:

Obtain updated financial information on an annual basis from your larger or slow paying customers.
What does a customer need to pay on a timely basis? Good earnings, positive working capital and/or having a good operating lender. If cracks start to develop, you will see it through a slower payment history with your company as well as other suppliers.
Have conversations and trainings with the sales team and management within your organization on how credit is underwritten from a credit risk perspective.

I have been a member of NACM since 1989 and it has been an invaluable tool to assist with credit management. During these times of uncertainty in the markets, use one of the most valuable assets of your membership to monitor payment history within your industry. If there is anything NACM can do to help you, we’re here to listen and be of service.

Norman Honas is Credit Manager for Helena Agri-Enterprises, LLC and a long serving board member of NACM Heartland.

GLOBAL ECONOMIC OUTLOOK AND MAJOR COUNTRY RISK DEVELOPMENTS FOR APRIL 2023

Companies in the U.S. and Europe that have borrowed on the cheap for years are facing the return of the once-familiar fear: rating downgrades. Borrowing costs have soared since the Federal Reserve started pushing up benchmark interest rates to curb inflation. Investors now demand annual interest payments of about 9% a year from U.S. businesses with low scores from rating agencies, up from below 5% a year ago. This means that some companies are steering clear of taking on extra debt to fund expansions or takeovers, instead relying more heavily on equity capital to keep their ratings in place. Sub-investment grade market access is not only difficult, but it is expensive.

When benchmark interest rates were low in the years following the financial crisis, and when central banks were buying bonds to support the system, companies could afford not to worry about ratings. But today, even safe, investment-grade companies in the U.S. must pay an average of more than 5.7% to borrow in the bond market, up from just 2% two years ago.

The sharp increase in interest payments - and the wider gap in borrowing costs between high - quality and speculative-grade issuers- has sparked concerns over potential credit downgrades, while suppressing appetite for debt-financed transactions that could jeopardize a company’s ratings.

Signs of persistent inflation have killed an early 2023 bond rally, with markets now betting that U.S. rates will stay higher for longer – possibly topping 5% through the end of 2023. They now stand in a range of 4.5% to 4.75%. That shift has led to some big swings in bond markets- bad news for lower-rated would be borrowers....

Attending the 2023 Credit Congress? Join us at the NACM Heartland Member Reception for food, drink, and networking!

It's not too late to register for Credit Congress. More information here.

Click here to RSVP to Maggie by May 18th.

Back to Basics

By Jonathan Kramer

As credit managers, it is easy to get into a rut focusing on the 10% or so of customers that are problematic. For that reason, we all must remember to take a step back and remember to engage in some self-reflection and process management to make sure we are doing all we can before these customers make us take notice.

Toward this end, I wish to remind you of four things that give you a leg up in keeping your relationships fruitful:

1. Make sure that your credit applications and agreements have attorney fee and cost of collection provisions, with personal guaranty language if possible. These provisions seem like they are for bad credit, but they really help motivate debtors to make sure your credit is preferred over others.

2. If your customer is bargaining for more time, make sure that you are at least getting some affirmative admissions from them that the debt is owed and undisputed and maybe some waivers in exchange for that amendment to the credit terms or forbearance.

3. Make sure that financial statements that you receive are signed under oath by someone. This is not a big ask, so it’s a real flag if there is pushback – also, because it helps your lawyer later down the road, it also motivates the customer to prefer to pay. Also, verifying the financials you receive with the financial institutions or others listed protects you from latent fraud.

4. Be mindful of who is controlling the relationship. If they are pleading with you, you are in control; if you are pleading with them, you have lost it.

If you remember and revisit these four basics (and remind your underwriters, salespeople and management also) your bottom line will thank you for it!

Jonathan Kramer has practiced law at Whitfield & Eddy, PLC in Des Moines for over twenty years and regularly advises on creditor’s rights and collection related matters.

Driving Difficult Conversations

By Stephanie Smith

Why do we avoid difficult conversations? Often tough conversations force us out of our comfort zones to ask for what we need. We may fear conflict, disapproval, or rejection—we do not want to “rock the boat” or appear selfish. We get anxious about how the other person will respond. The key to having an effective difficult conversation is to acknowledge that discomfort and initiate the conversation, even though we feel awkward or uncomfortable. The result of not having the difficult conversation is often worse than having the conversation.

PREPARATION:

A successful difficult conversation starts with preparation. Before you have a tough conversation, identify:

• The issue. What is happening between you and the other person?

• The impact. What is the effect on you, your work, or others around you?

• Your desired outcome. What do you want to happen as a result of the conversation?

• How you will keep your emotions in check. What will you do to stay open-minded and calm?

You could easily write this down or talk it over with a trusted co-worker or friend. Once you have completed this preparation, you are ready to have the conversation using ATW’s three-step model: Initiate, Explore, then Focus on the Future.

INITIATE:

After you have prepared for the conversation, consider how you will initiate the conversation. Start positively, by first asking the person for the conversation. For example, you could say, “Do you have a minute to talk?” or “Could we meet later today?” As you begin the conversation, state the issue and the impact clearly and directly. Avoid unloading or “venting.” How you start the conversation affects the other person’s willingness to engage with you, so start on a positive note.

EXPLORE:

After you have initiated the conversation, explore the other person’s perspective by asking questions. You could simply ask, “How do you see the issue?” This is the time to hear the other person’s point of view. Remind yourself to actively listen with an open mind and avoid interrupting the other person. As you listen to the other person’s perspective, identify common ground.

FOCUS ON THE FUTURE:

End the conversation by focusing on the future. Concentrate on your desired outcome while also thinking of the other person’s perspective. Is there a way for you to collaborate and move forward? This is the time to be action-oriented and determine what will happen as a result of the tough conversation. Develop a plan for follow-up; multiple conversations may be required for ultimate resolution.

When you are faced with a difficult conversation, consider the ramifications of not having the conversation. Embrace the discomfort. Conducting successful difficult conversations—through preparation, taking the step to initiate a dialogue, exploring the other person’s perspective, and focusing on the future—can be the difference between failure and success.

Stephanie Smith is a Training Consultant with ATW Training Solutions.

Teri Dunlavy Takes on Additional Role

We are pleased to announce that Teri Dunlavy, in addition to her role as Certified Group Administrator for NACM Heartland, has agreed to take on the role of Credit Group Coordinator and Meeting Prep Support.

Teri joined the team last year with a strong background in credit. She was previously the credit manager for Harvest Land Co-op (which merged with Co-Alliance Cooperative, Inc.) and was a member of the Ohio River Valley and Great Lakes groups.

Industry trends important to EFCO is as we head into Q2 of 2023:

Inflation
How to deal with projects that had long lead times (pricing).
Addressing projects that shipped in 2021 on our old pricing but still invoicing today.
Supply chain issues
Working through delays caused by the supply chain breakdown.
Adding lead times to existing projects.
Labor shortages
We are struggling to find manufacturing labor.
Projects are struggling to find unskilled as well as skilled labor.
Freight costs
Continue to rise despite fuel process stabilizing.
Lien law changes
We are monitoring several lien law changes being posed in various jurisdictions.
Flow-down provisions
More and more of EFCO’s clients are passing contract language from the owner/developer to us as material suppliers.

NATIONAL SCHOLARSHIP PROGRAM CHANGES

The National Board of Directors made the following change to the National Scholarship Foundation’s Scholarship Program:

Traditional in-person CAP and ACAP classes will now be a category for consideration for scholarship assistance. In addition, the Board voted to allocate 5% of the available NACM Scholarship Foundation fund each year to Affiliate Programs. Affiliate program awards are to be made at the retail cost of the event or program.

The scholarship application form for students has been updated online as well as the list of eligible categories. You may reference this information here.

Scholarship Categories:

NACM National Credit Congress & Expo
NACM National In-house Certificate Session Courses: Business Credit Principles, Financial Statement Analysis 1 or Financial Statement Analysis 2
FCIB International Credit & Risk Management Online Course^sm
NACM National Online Course: Accounting
NACM National Credit Learning Center: Courses and Specialty Certificates that cost over $400
The Graduate School of Credit and Financial Management (GSCFM)
NACM Affiliated Association sponsored Fall Conferences (formerly Regional Conferences All-South, Central, Eastern or Western Conferences)
NACM Affiliated Association In-person CAP and ACAP Courses

If you are interested in learning more about UTA Digital Payments - NextGen, contact Dean at dmiddleton@unitedtranzactions.com.

CALENDAR

APRIL

4-17 Financial Statement: Tips and Tricks for Beginners Webinar

4-19 Using Hybrid Work to Improve Retention and Productivity While Cutting Costs Webinar

4-19 Construction Credit Exchange Zoom

4-21 Application Deadline for the June 11 Test Date Online

4-25 International Banking Webinar

4-25 Implementing a Lien/Bond Claim Program: Overcoming Obstacles Webinar

MAY

5-1/8-18 Accounting Online Course - Spring 2023 Online

5-8/8-11 International Credit & Risk Management Online Spring 2023 Course Online

5-9 UCC Remedies Upon Debtor's Default Webinar

5-16 Managing Procrastination 101 Webinar

5-17 Construction Credit Exchange Zoom

5-18 Nuts & Bolts of Bankruptcy Webinar

5-22 Heartland Steel Credit Exchange Bloomington, MN

5-23 Serving on an Official Committee of Unsecured Creditors Webinar

5-23 Understanding Lien Waivers Webinar

JUNE

6-6 UCCs Offer Security for Many Business Transactions Webinar

6-7 Bio Fuels Credit Exchange Des Moines, IA

6-10 Financial Statement Analysis 2: Credit & Risk Assessment Grapevine, TX

6-10 Business Credit Principles Grapevine, TX

6-11/6-14 127th Annual Credit Congress & Expo Grapevine, TX

6-11 Certification Exam Date Grapevine, TX

6-14 NACM Heartland Board Meeting Grapevine, TX/Zoom

6-16 Application Deadline for the July 24 Test Date Online

6-20/21 NACM Heartland Construction Meeting Omaha, NE/Des Moines, IA

6-20 Master Conflict Resolution Webinar

6-20 The Importance of Gathering Job Information Webinar

6-26 (GSCFM) Advanced Financial Statement Analysis Zoom

6-27 Common Mistakes In UCC Filings Webinar

6-28 NACM Heartland Summer Education & Networking Event Omaha, NE

Visit our website for more information!

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