Automation to Help, Not Hurt, Credit

We’ve all seen the films: self-driving vehicles, robots taking food orders at restaurants and machines running the world. Is this the future decades down the road, or are we already contributing toward this outcome? According to a new report, this automation process is currently underway, yet it may not be as bleak as it is on the silver screen.

Automation has already started in the credit industry. “Many see big benefits,” said Kurt Sorensen, CCE, CEW, CICP, corporate credit manager with H&E Equipment Services Inc.  “Automation is near the top of the wish list. Everyone is trying to automate as much as they can.” Automation allows credit professionals to focus on risk taking rather than clerical tasks.

A study by staffing agency Robert Half found nearly half of the 160 Australian CFO respondents plan to expand their permanent staff to help implement their automation, said an article from technology website Another third plan to up their temporary staff to help with automation. The study focused on Australia and the finance industry. Within finance, more than three-fourths of CFOs said credit management is already automated or will be within three years.

Automation in credit is being used to set up new customers, said W.W. Grainger Inc. Senior Manager of Credit Administration Ed Bell, Ph.D., CBA, ICCE. He has also seen it used for new account forms, maintenance reviews and updates, and gathering new data. Automation is in the billing, accounts receivable and collections departments, as well.

The Robert Half study found roughly seven out of eight CFOs “agree that workplace automation will cause a shift in required skillsets, rather than eliminate jobs altogether,” said ZDNet. “I’m not looking to reduce head count, rather I want to reduce the expansion of head count,” said Sorensen. “It’s about not backfilling when tenured credit professionals leave the industry,” said Bell. These new abilities employees will be learning include additional credit skills and communication skills. Employees will no longer be behind the scenes, Bell said. They will have to be integrated with the sales team, Sorensen said.

There is some resistance to the addition of automation as there is with any change. Bell believes it is possible to make up for the loss of experience from retirees with automation programs. Despite this, there are still five C’s in credit, and “a program can’t tell the character of a customer,” Bell said. This is the reason why jobs will be there, but they might be those in which less-tenured employees are partnered with automation. “Automation only works if it has data,” he added.

The number of automated actions in the credit department depends on the company, said Sorensen and Bell. Some large companies went all-in for automation, but some small-to-medium-size enterprises never took the plunge, Bell said. His best guess is between 25% on the conservative side and 40% on the liberal side of credit processes are automated across all companies. Business-to-business credit has some catching up to do on the retail side, he added, but it will get done as businesses adapt. “You can’t sit on the sidelines,” he concluded.


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Understanding What Mechanic’s Lien Notices of Completion Mean for Getting Paid

Construction credit is distinct from other types of commercial credit, and this is perhaps nowhere more evident than in the various provisions each state requires regarding the procedures that must be followed to assert and perfect rights to payment on a job account through mechanic’s lien statutes.

Statutes that allow respective filing deadline dates to be based on project completion can create some of the most difficult lien deadline situations credit managers can face, according to Chris Ring of NACM’s Secured Transaction Services (STS). Knowing the statutory provisions from state to state is critical, as creditors may be forced to file the lien sooner than assumed. You’ll need to explain this to your customer, who may be unaware of unpaid balance provisions—meaning lien rights are limited to unpaid funds—in states like Massachusetts and Utah.

Project completion is loosely defined as completion of the entire general contract, as different parties or occurrences can be used to determine project completion, including: final progress payment, final release of retention, architect’s final inspection and escrow closing.

Some states allow a property owner to file a Notice of Completion (NOC) or Notice to Commence Action document. After the filing of an NOC in certain states, the lien deadline date may be reduced, according to STS’s Lien Navigator. These states include: Alaska, Arizona, Arkansas, California, Hawaii, Louisiana, Massachusetts, Montana, Nevada, Texas and Utah.

In Louisiana, the NOC provision is only applicable if a Notice of Contract was filed timely by the prime contractor before work commences, the Lien Navigator states. If this is done correctly, then subcontractors’ or suppliers’ Statement of Claim to file a lien must be done within 30 days after the filing of a NOC. Otherwise, the lien period is extended to 60 days from completion (70 days for residential construction).

Material suppliers can sometimes struggle with understanding when to file a mechanic’s lien on a project in a state where the deadline runs to project completion, Ring said. He suggested an industry best practice is to have a written policy and procedure in place to describe when payment is expected, and start making more aggressive collection calls or send demand letters based on that date.

Also, those who are among the first trades on the job (e.g., excavation, cement, structural steel, etc.), must realize that the project may not be completed for several years on large commercial projects, Ring said. Most companies can’t afford to carry a receivable several years. Remember, “There’s no need to wait until project completion to step up collection efforts and potentially file a lien,” he said.


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Export-Import Bank Reports on Global Export Credit

The Export-Import Bank of the United States (EXIM) recently released its competitiveness report to the U.S. Congress on global export credit, which focused on official export credit provided by global export credit agencies (ECAs) on medium and long (MLT) repayment terms of more than two years. There are 96 ECAs around the world.

Among the key findings of the report, which covered all of 2016, was that nearly half of the total export credit provided worldwide came from the countries of Brazil, Russia, India, China and South Africa. Most was offered on terms outside of the rules on export credit of the Organization for Economic Cooperation and Development (the OECD Arrangement), to which EXIM adheres. China’s $34 billion in MLT export credit and $50 billion in investment support represents the world’s largest. More trade-related investment support came from China than the rest of the world combined.

The chief suppliers of MLT export financing include commercial banks, private export credit insurers, ECAs, and suppliers, the report said. Principle sources of demand for MLT export financing include project finance, major sectors such as aircraft and shipbuilding, and the capital needs of governments.

Sectors that are normally large users of MLT ECA export finance experienced downturns last year. Bankruptcies and financial troubles from overcapacity plagued freight shipping. Low commodity prices during the last five years have made long-term commodity investments less attractive. Half as many large oil and gas projects were started in 2016 as in 2014, the report cited. Demand for official export finance increased from Middle Eastern countries due to low oil prices adversely affecting cash reserves and domestic banks challenged to provide liquidity.

Last year, demand for official export finance decreased in the aircraft, freight-line shipbuilding and project finance sectors, while growth was seen in the cruise line and defense sectors. Positive demand growth in export finance was dependent on strong demand from transportation sectors in the face of sluggish export growth globally of about 2%.

MLT volumes among OECD participants varied greatly. Increases were seen in Italy (+93%) and the United Kingdom (+198%), while declines occurred in the United States (-97%) and Japan (-63%).

In 2016, EXIM approved about $200 million in medium-term authorizations and no long-term authorizations. It operated without a quorum on its board of directors, which prevented approval of financial transactions more than $10 million, due to the U.S. Congress not approving additional board members for the bank, the report stated.


NACM Regional Conferences

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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.

Central Region Credit Conference
September 12-13, 2017
St. Louis, MO
Hosted by: NACM Connect

All-South Credit Conference
September 17-19, 2017
Clearwater, FL
Hosted by: NACM Tampa

CFDD National Conference
September 21-22, 2017
Omaha, NE
Hosted by: CFDD

Western Region Credit Conference
October 11-13, 2017
San Diego, CA
Hosted by: San Diego Credit Association

China Juggles Debt, Trade and Sustainability as It Seeks to Contain Growth

China is rebalancing, but it’s doing so as a high-wire act. In the country’s efforts to rebalance its economy from exports and investments toward consumption, the slowdown in those exports and investments is weighing on China’s trading partners. Further, its growth is likely higher than anticipated, with increasing debt as a result.

This week, the International Monetary Fund (IMF) announced its latest annual report on China, in which it revised upward estimates for the country’s growth to an average 6.4% between 2017 and 2021. This comes at the cost of higher debt, which may reach 300% of GDP by 2022. The IMF reiterated that sustainable growth needs a boost in consumption and a speeding up of reforms to make growth less dependent on debt and investment.

According to a recent report from credit insurer Atradius, the share of consumption in GDP has increased only slightly from 2010 to 2016 to reach a little under 39%. Total investments have a 45% share of GDP. Growth in GDP has declined in recent years as growth in private consumption was not enough to compensate for lower investments.

Despite efforts to make growth sustainable, high credit growth has created substantial imbalances in the economy, particularly connected to state-owned enterprises (SOEs). High rate investment growth, often financed by credit, has created overcapacity in mining, steel and other heavy industries. Corporate liabilities reached 166% of GDP in the fourth quarter of 2016. SOEs account for almost half of corporate debt.

The desire for a gradual adjustment to its economy remains a balancing act, Atradius said, and the country’s trading partners are feeling the impact. These effects are felt the strongest by Singapore, Taiwan, South Korea, and Chile. The rebalancing agenda, as opposed to export-oriented unsustainable growth, will have a negative impact on global GDP of 0.8% over the next year, Atradius said.

The IMF's recommended strategies include increasing the role of market forces by reducing subsidies to SOEs and opening more sectors to private investment, deleveraging the private sector, and focusing more on quality and sustainability of growth rather than quantitative targets. The IMF also warned that China needs to increase productivity through better use of resources that are currently spent on loss-making (“zombie”) companies, SOEs and industries at overcapacity.

But this growth, along with a housing boom and a slide in the U.S. dollar, has benefited U.S. companies, who have registered stronger second-quarter earnings and revenue from Chinese operations, Reuters reported. The plan to build the New Silk Road connecting Asia and Europe has helped American firms that sell heavy equipment to the country. Caterpiller Inc. marked a 25% rise in sales in the Asia-Pacific region in the second quarter because of China, according to Reuters.

The drive toward consumption growth is also benefitting companies, including those outside the U.S., such as the European liquor industry. Spirits maker Remy Cointreau reported strong consumption growth from China’s upper middle class, Reuters said.


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  • 9/17/17 - 9/22/17: Financial Statement Analysis 1
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GAO Reviews Surety Bond Requirements, Waivers

Protection is one of the essential aspects of construction. This is the case on the job site with hard hats and in the office with paperwork. There are certain laws in place to help subcontractors and suppliers get paid. One tool is the mechanic’s lien. The other is a surety bond.

Contractors are required by federal law to obtain two types of surety bonds, a performance bond and a payment bond, when working on a federal construction contract that meets certain cost thresholds. The performance bond makes sure the contractor executes “the contract in accordance with its terms and conditions,” while the payment bond guarantees subs and suppliers are paid for their work and material, according to the Government Accountability Office (GAO).

“This law, which is sometimes referred to as the Miller Act, allows for these surety bond requirements to be waived under certain conditions, such as when the contracting officer determines it is impracticable for the contractor to furnish a bond for work performed in a foreign country, or for specified Department of Defense (DOD) and Department of Transportation cost-reimbursement construction contracts,” said the GAO, which recently completed a study on surety bonds. The Small Business Administration can also step in to help smaller companies obtain surety bonds.

The GAO reviewed the DOD and the departments of Veterans Affairs (VA) and State in the surety bond report, which was conducted between February and August. “Officials from State and DOD stated that although they generally require bonds for all construction contracts, they have used waivers for certain overseas construction contracts—as allowed—when necessary,” according to the summary of the report. The DOD, VA and State accounted for more than 80% of “total obligations on federal construction contracts with small businesses from fiscal 2012 to 2016,” said the report.

The GAO also took a closer look at surety bond fraud, which can be reported to federal whistleblower hotlines. The GAO found this to be rare from the three agencies. Surety bond fraud is when the “issuer provides fraudulent information about the assets available to support the bond.” The GAO reviewed the requirements for surety bonds, how often they are waived by the three agencies and the whistleblower process to report fraudulent bonds.

The three agencies do not have a tracking system in place to see how often surety bonds are waived; the federal government procurement database “does not include information related to waivers of surety bond requirements.” Officials also told the GAO that these waivers are rare, and “a U.S. Army Corps of Engineers official, who reached out to 12 regional contracting offices, said that he and the regional officials could not recall even one instance in which surety bond requirements for a construction contract were waived,” the report added. A VA official with nearly 30 years of experience could not give an example of a surety bond being waived.

A database search by a DOD official found only one case since 2011 that related to a surety bond fraud whistleblower. There were only three similar instances between 2012 and 2016 with the VA. A State official did not find any information in their data system. The GAO concluded that it is not making any recommendations.

Surety bonds have come up recently in state legislatures as well, including in New Hampshire and Rhode Island. To read more about the latter and unlicensed bonding companies, visit our eNews here. To learn more about surety bonds, view our NACM Secured Transaction Services Newsmakers here.



Use these Tools to Mitigate Your Risk when Selling Internationally

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