State Legislators, Governor Battling Over Direction of DBE/MBE Use on Public Jobs

A legislative chess match that warrants watching by construction suppliers and contractors nationwide is pitting New York Gov. Andrew Cuomo’s efforts to further elevate disadvantaged business enterprise (DBE) or minority business enterprise (MBE) inclusion in state projects against lawmakers trying to reduce already hard-to-meet burdens on businesses.

Various proposals designed to lower the burden on material suppliers and small subcontractors, where DBE and MBE (in New York known as MWBEs) mandates are concerned, are working their way through the state legislature. Chief among them is A10017, which seeks to correlate the mandated use of minority- or women-owned enterprises on a state-backed project with the percentage of such businesses operating in the regions where the contract is being performed. New York already has one of the highest percentage requirements (30%) in the country, and the governor has made no secret about plans to increase required MWBE participation to 40% by 2017. It is a difficult, at times impossible, standard to meet based on the available suppliers and subcontractors that qualify, Assemblyman Clifford Crouch (R) suggested in proposed legislation.

“Certain areas of New York State are severely underrepresented in this category,” Crouch wrote. “To qualify to be awarded a contract, the business would have to bring [in] outside MWBEs, thereby ignoring the local labor talents and contracts that live and work in the region.”

Businesses in areas such as Upstate New York have limited options to choose from, said one veteran credit manager. It’s left construction suppliers and subcontractors going to a limited pool that sometimes isn’t qualified to do the work or isn’t actually performing all-important “commercially useful functions” mandated by state and federal laws.

“There are some of these that aren’t certified as roofers or plumbers or electricians, so they literally can’t do the work,” the creditor told NACM. “There are also suppliers that are too new or too small to have the wide variety of materials needed for certain state jobs. It’s making things very difficult. This is not what the laws were intended to be doing. This is detrimental.”

Suppliers and contractors that are aware (many, dangerously, are not) also face a reality that federal laws are somewhat vague and state laws, almost intentionally, appear worse, which raises the risk of hefty fines for noncompliance. “There’s not really a handbook for this—nowhere does it say how many pillars have to be met to be compliant,” he noted.


Certificate Sessions, Credit and Risk Assessment, Business Credit Principles

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B2B Credit Card Payments Gaining Momentum

Credit cards are gaining in use as a payment method in B2B transactions. Various statistics reflect a 14% year-over-year increase in commercial credit card growth, said Matt Fluegge, of Vantiv, a partner of United TranzActions. In comparison, check usage has declined from 41.9 billion checks in 2000 to 18.3 billion in 2012.

About 9% of all incoming B2B payments today are being made by credit cards, Fluegge said.

Credit cards have historically been one of the less common payment types for B2B vendors in part due to the fees, but also because they were once viewed as a red flag that a business had cash flow problems. Today, they’re gaining share as a payment method among B2B customers because of ease of use and incentives from issuers. This puts more pressure on B2B sellers to accept them.

Any payment method has associated processing costs such as lock box and bank fees, collecting on bad checks or labor costs to manually process payments, Fluegge noted. While it is more difficult to compute those costs up front, credit card costs are readily available by reviewing monthly merchant services statements, he said.

In theory, payment is faster, said Kathleen Quill, CBA, CAE, CGA, president of NACM Gulf States. “However, purchasers often use the 30 days allotted for the sale to hold onto their money. Then they pay with a card. Sellers need to be alert to such tactics, since they can quickly remove the advantage of accepting credit cards for regular payments.”

There are a number of ways to mitigate credit card fees, Fluegge pointed out. Procedures and providers combined with the right technology will have a significant impact on controlling fees, he added. In some cases, merchants can add a surcharge to offset credit card processing costs. Suppliers can actually benefit from card acceptance, he said. Benefits include an expanded customer base, increased sales and cash flow as well as lower risk. “Once they receive approval or authorization from the card issuer, they’re going to get paid,” Fluegge said.

Credit departments need to think differently when it comes to credit card payments, suggested NACM Executive Vice President Rudet Fountain. Sellers can still create incentives for a customer to use their preferred payment method. For example, a seller can offer a 5% discount if paid within 30 days by cash or check and a 3.5% discount for a credit card payment.

Credit card processing also can be integrated into enterprise resource planning (ERP) systems. It comes down to a business decision based the system the company currently uses, the number of credit card transactions processed and the size of the company, Fluegge said.

Some businesses can choose to process credit cards as Level 3 transactions, which have lower processing fees. Some B2B sellers, however, don’t have processing systems that allow for those types of transactions, Fluegge noted.

Most importantly, credit professionals need to understand credit cards better so they can control costs and reap the most benefits from accepting them. “They need to develop a credit card management program,” he concluded.


FCIB's International Credit and Risk Management Summit

World-class Education and Networking for International Credit and Risk Managers

November 13-15, 2016
Amsterdam, Netherlands
Steigenberger Hotel

Summit highlight: With continued turmoil in the markets, FCIB is offering two educational sessions on country risk.

Country Risk: Latin America

As troubling news from Brazil and Argentina remains a cause for concern to world markets, panelists from across industries and areas of expertise will discuss the current and future risks of trading in key Latin American countries.

Country Risk: Trading Conditions in Russia

Conducting business in “sanctions heavy” Russia requires informed sovereign risk analysis. Panelists will discuss how to mitigate risk, conduct business safely, and examine how perceptions of trade with Russia match the reality.

For more information and to register, visit

Nontraditional Analysis Tools Can Help Eliminate a Metrics ‘False Positive’

When it comes to deciding whether to extend credit, or how much, to a customer, credit professionals can choose from a number of tools. Sometimes, however, they don’t give an accurate picture. Charles Edwards, CCE, a regional credit manager for Ferguson, recently said his company was grappling with how much leniency to grant one of its larger customers.

“A lot of the traditional metrics were giving us a false positive,” noted Edwards, who recently completed the NACM Graduate School of Credit and Financial Management (GSCFM). The information led the credit department to dig deeper. Using a spreadsheet developed by GSCFM instructor Chuck Mulford, “It became apparent that over time the company was becoming more and more inefficient in how it was generating and spending cash,” he added. “The spreadsheet incorporates a significant amount of data. It got to the root of the issues.”

Edwards explained that it made a strong case for how they chose to proceed with the customer.” It’s been a real success story,” he said. “It justified a more conservative approach. We were able to enact some strategies to reduce their outstanding balance.”

Mulford developed the Excel spreadsheet for financial analysis more than 20 years ago and makes it available to his GSCFM students. “It’s fairly involved and has been improved over the years,” he said. “I don’t teach to the spreadsheet at all. It’s just a tool.”

Many of his students such as Edwards have found that it’s useful for all kinds of financial analyses, Mulford said. “It provides a unique perspective on the statement of cash flows. The format combines the indirect and direct methods into one.”

Unlike the indirect analysis method, this format reconciles every line item to its cash flow counterpart. “You’re getting a full picture of the income and cash flow statements all in one,” he noted. Then, it provides a cash flow drivers report that identifies each account change in cash-flow terms. “It will tell them how much of that change is due to growth in the business and how much is due to a change in fundamentals,” Mulford explained. “It helps them analyze where cash flows are coming from and going.”


FCIB Credit Reports

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The amount of information varies relative to each country’s commercial practices and laws, but usually includes:

• Advised dollar amount credit offering, based on report findings
• Credit risk rating
• Political data
• Economic data
• Business and subject identification
• Business profile
• Primary suppliers
• Financial and legal records, including OFAC verification and compliance

In short, we check to see that the subject is who they say they are. The more you know, the better your credit decision will be. That’s what an FCIB Credit Report can do for you.

FCIB Credit Reports: no contracts, always freshly investigated and verified, with three delivery speeds.

To learn more, contact Tina Mansfield at This email address is being protected from spambots. You need JavaScript enabled to view it. or call 410-740-5560, x1010.

China’s New Economy Bifurcates Industries That Will Experience Growth, Risk

As China switches its economic focus to consumption and services, growth sectors will be linked to medium- and long-term growth potential, governmental policies and structural demand. (Economists predict slower growth of around 6.5% for it economy through 2017.)

The automotive, information communication technologies (ICT), pharmaceuticals, retail and transportation industries appear primed to perform well, said Jackit Wong, Asia Pacific economist with Coface. Businesses in these sectors should reap ongoing investments in fixed assets and government incentives, such as for electric vehicle and aircraft engine manufacturing.

Coface also rated most of these sectors as low (pharmaceuticals) or medium risk (the remainder), except for the ICT sector, which is considered high risk due to more intense regional market competition, shorter business cycles and market saturation, Wong said.

Growth outlooks for China’s formerly strong sectors—chemicals, energy and metals—do not look good. “These sectors have been suffering from significant overcapacities, falling demand and lower support from the government, as it shifts away from energy intensive, highly polluting, heavy industries,” she said. Fixed-asset investment by companies in these sectors has been declining, while the Chinese government plans on scaling back overcapacity. Coface also assigned the construction and metals sectors a very high risk designation in light of recent debt problems due to more nonperforming loans, corporate bond defaults, industrial overcapacity—especially in cement and metals—and “zombie” companies. The chemical and energy sectors, particularly coal, also carry a high risk designation.

Metals, especially steel, is a key categorical indicator for many U.S. businesses, including that of NACM-National Chairman Gary Gaudette, CCE, ICCE, senior treasury analyst with Hypertherm, Inc. of Hanover, N.H. The category is weaker in China than it was a year or so ago, though it remains a significant market for the company. Although the firm is conservative with credit, Hypertherm has seen risk tick upward and a few customers struggle as the Chinese economy has slowed. A domino effect is also in play.

“I think the slower growth economy of China has impacts on our customers in other parts of the world,” Gaudette said. “For example, the mining industry in Australia relies heavily on that natural resource consumption in China. Some of our customers in Australia sell into the mining industry, so the reduced demand in China flows back through some of our customers in Australia.”


NACM Regional Credit Conferences

Connect, Network, Learn and Share

Held each fall, the regional conferences are a wonderful opportunity for members to learn and grow by attending educational sessions and network with fellow credit professionals from their respective geographic regions.

Eastern Region Credit Conference
September 14-15, 2016
Rochester Airport Marriott
Rochester, NY
Hosted by: NACM Upstate New York

All South Credit Conference
September 18-20, 2016
Hyatt Place Fort Worth
Historic Stockyards
Fort Worth, TX
Hosted by: NACM Southwest

Western Region Credit Conference
October 12-14, 2016
Renaissance Seattle Hotel
Seattle, WA
Hosted by: NACM Business Credit Services

Central Region Credit Conference
November 9-10, 2016
Crowne Plaza Hotel
Independence, OH
Hosted by: NACM Great Lakes Region

Short-term Prospects Bright in Construction, But Efficiency Still Critical

Construction economists predict the domestic industry will see solid growth over the next year or so, with commercial construction and single-family housing leading the way to prosperity. This prediction—and some potential impediments to the forecast such as labor shortages and growing regulatory costs—seems to be playing out on a narrower timeline, the latest Commerce Department figures demonstrate.

Regardless of where they sit in specific sector, credit managers will have to do their best to mitigate risks and bring down costs. For Sam Smith, regional finance manager-East, at Crescent Electric Supply Company in East Dubuque, Il, bigger projects have been slow to materialize in the electric supply industry, particularly public projects and anything in the oil and gas or agriculture sectors.

“In times like these, it’s important to focus on efficiency, finding ways to improve the process, cutting costs and, of course, finding a way to convince your customers—both existing and potential—that your organization is the one to best meet their needs,” he said. “From a credit perspective, it’s always important to maintain your rights such as lien and bond rights. Make sure you have solid relationships with your customers and be involved with them. Customer service is more important now than ever.”

American Institute of Architects (AIA) Chief Economist Kermit Baker also noted that the single-family residential and institutional building sectors have the greatest potential for expansion. “Revenue at architecture firms continues to grow, so prospects for the construction industry remain solid over the next 12 to 18 months,” he said.

Nonresidential construction is leading the way with growth rates in the 3% to 4% range, added Anirban Basu, Associated Builders and Contractors chief economist. “Growth will continue to be led by privately financed projects, with commercial construction continuing to lead the way,” he said. “Energy-related construction will become less of a drag in 2017, while public spending will continue to be lackluster.”

In the short term, privately owned housing starts in July were up 2.1% above the revised June estimate of 1.18 million and were 5.6% above the rate of 1.15 million in July 2015, the Commerce Department said. Single-family housing starts in July were up 0.5% month-to-month at 777,000.

The July starts numbers were tempered somewhat by a weaker-than-expected figures for new residential building permits, which were 0.1% below June’s revised rate of 1.15 million, Commerce said. Building permits for single-family housing were down 3.7% in July from the 738,000 recorded in June.

Impediments aside, historically low mortgage rates and favorable demographics should help maintain a steadily growing housing market this year, said Robert Dietz, National Association of Home Builders (NAHB) chief economist. “Our forecast shows single-family production expanding by more than 10% in 2016,” he said.


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For more information, call Chris Ring at 410-302-0767 or visit



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