May 2, 2024

NACM’s April Credit Managers’ Index (CMI) fell back to where it started in 2024 with a 3.1-point drop.

Why it matters: Now sitting at 51.8, the Survey erased the major gains made in February and March.

• “After two months of improvement, the CMI has fallen back to near where it started the year, in expansion but weakly so,” said NACM Economist Amy Crews Cutts, Ph.D., CBE.

The index for favorable factors deteriorated by 4.5 points but remains solidly in expansion at 57.7.

Three things you need to know:

1. Every favorable factor worsened in April.
2. Dollar collections led the decline with a 6.3-point drop to 54.9.
3. Sales fell 4.5 points to 57.6.

The index for unfavorable factors dropped 2.2 points and landed back in contraction territory at 47.8.

Three things you need to know:

1. This index has been in contraction for 10 of the last 12 months.
2. Dollar amount beyond terms plummeted 10.2 points to 43.9.
3. Accounts placed for collection remains in contraction territory for its 23rd consecutive month.

💭 Amy’s thought bubble: “It looks like the Fed is unlikely to cut the target interest rate until much later in the year, if at all,” she said. “We will be in a phase of monetary tightening for a considerable amount of time.”

What CMI respondents are saying:

• “We are seeing a slowing of restock orders and payments.”
• “Retail sales are at a slow start.”
• “A specific part of our business is doing very well, which is why our sales are up. So far, these customers are paying well.”
• “Sales volume is very inconsistent bouncing up and down. Service and manufacturing for a sister company has slowed considerably. It's difficult to get a handle on the market right now.”
• “The number of NSFs are higher.”
• “Collections are getting harder. Our customers are having a harder time getting paid from their own customers.”

Sign up to receive monthly CMI survey participation alerts. For a complete breakdown of manufacturing and service sector data and graphics, view the April 2024 report. CMI archives also may be viewed on NACM’s website.

A credit report is a statement that includes all credit activity, both current and past, including payment history, credit limits and debt. Credit reports help credit managers uncover a customer’s risk level and likelihood of getting paid on time.

Why it matters: Understanding how to properly analyze a credit report is key for making informed decisions and managing credit risk effectively.

Know when to use one. Some credit professionals will run a credit report during the credit application process of a new customer, and others will use credit reports when a business’s ownership or structure changes. In most cases, credit reports are used throughout the entirety of a customer’s business with the credit manager’s company. “Not all credit reports are built the same,” said Jennifer Walsh, CCE, CGA, chief executive officer at NACM Commercial Services (Spokane Valley, WA). “There is more behind just looking at a score. Credit professionals must understand their company’s risk tolerance while analyzing suggested credit limits and prediction scores.”

When potential customers submit credit applications, it is typical for them to provide references along with the application. However, customers giving their best references that they pay the best may not paint a full picture of their habits. “Doing your due diligence means pulling credit reports to see how a potential new customer is paying other vendors,” said Angela Harwood Brent, CGA, president and chief operating officer at NACM Southern Valley (Knoxville, TN). “It is also a good time to pull a credit report if there's a sudden change in their payment history.”

By the numbers: Half of all credit managers say credit bureau reports are the single most important data source when assessing customers, according to a joint NACM-Nuvo survey.

Know your customer. Even though credit reports are a major help in assessing customer worthiness and risk, the knowledge of a credit manager should always be the final factor in determining if credit will be extended. “There is no self-standing business credit score that can answer all the questions related to extending credit,” said Anton Goddard, president of NACM South Atlantic (Orlando, FL). “Credit professionals should look first for a quarterly summary on the NACM National Trade Credit Report (NTCR), for example. That part tells the story of how the subject has paid their bills over the past one-year period.”

Spot the red flags. Credit reports contain a lot of information, so credit managers must know exactly what to look for. Here are a few examples:

• All trade lines are small balances. For example, if a customer asks to open an account of a $1,000 balance with a $50,000 limit and there's no evidence on the credit report to support that it is their normal purchase history.
• Mismatched information. If basic information such as addresses do not match with their credit application, or the company name is incorrect, it could be a sign of fraud.
• History of unpaid bills. “You can see payment history and financial information on an NTCR report through the database and view the number of reported tradelines it contains,” said Frank W. Sebastian, CBA, director of business development at NACM Commercial Services (Evansville, IN). “It is extremely important to have as many as possible to get the full picture of the customer and payment history.”
• High-risk lenders listed in the report. “While UCC's indicate that the subject has secured some assets, financing, or lending, some lenders charge high rates for loans and factoring, which indicates the subject's desperation,” said Goddard. “Just because a report's balance is mostly zero does not mean a customer has a good payment record. Consider that suppliers may have stopped selling, and there are no balances for that reason.”

Though credit scores and applications are both great lines of defense against potential risk, credit reports take a detailed look at finances that other information may not uncover, assembled all into one document. It can also be used as a back-up source of protection against risk when you compare the information to credit applications as well.

The big picture: Credit managers must understand how to read a credit report to assess customer risk level, make informed decisions and manage credit effectively throughout the entirety of a customer’s business relationship.

Credit managers have difficult conversations every day—whether that’s collection calls with customers, disagreements with sales or reporting to senior management.

Why it matters: While most of us would prefer to sidestep conflict, for dynamic leaders in the workplace, this isn't an option.

• Credit managers must not avoid challenging conversations, but rather tackle them head-on with confidence.

At work, situations may arise between you and your supervisor, colleagues or customers that call for you to initiate a difficult conversation. The frequency of these discussions can depend on the industry, company, department or role.

The importance of relationship-building and networking in credit management requires professionals to handle difficult conversations tactfully, communicating effectively with customers, staff and management to reduce risk and increase revenue.

Here are some tips to manage difficult workplace discussions:

#1 Remain calm

Maintaining calmness during heated meetings, negotiations or tough conversations is challenging—whether that’s handling a collection call for a past-due account or confronting an employee on an ongoing issue. By staying calm despite the tension, credit professionals will not only find solutions faster, but they will build stronger relationships in the long run.

“I think it's human nature to feel like somebody may be pushing you into a corner in a difficult conversation,” said Wendy Mode, CCE, CICP, corporate credit manager at Delta Steel, Inc. (Cedar Hill, TX). “I remind them that it’s nothing personal and it is strictly business. I try to defuse it by being more relatable and understanding of their situation.”

#2 Take a break

If a conversation becomes heated, it might be better to resume the discussion another day. “If I know that a conversation is not going well, I’ll get off the phone, maybe take a break and then follow up with an email,” Mode said. “You must be careful as emails can be misinterpreted. So, I take my time getting back to them and rescheduling another time to chat.”

Not only does walking away or distancing yourself help deescalate the conversation, but it also leaves room to find a better solution before the next discussion.

#3 Focus on the facts

Heightened emotions often dominate difficult conversations, overriding logic. Instead of focusing on the dispute itself, people may find themselves preoccupied with their own feelings stemming from the conflict. This means credit professionals must get to the root of the issue to find a solution.

Alisha Gray, purchasing manager at Orgill Inc. (Collierville, TN), says most difficult conversations stem from billing disputes due to incorrect pricing set by vendors. “It's a matter of getting the information to our pricing team because customers don’t want to pay a bill until it’s right,” she said. “Sometimes the customers will get pricing from vendors, but we have the original, so customers can get the price they were quoted.”

Gray approaches difficult collection calls by being polite and courteous. She’s aware that no hostility is directed towards her but rather the situation for the customer not being able to make that payment. “Companies also need to be mindful to stay calm to diffuse that situation instead of making it worse.”

Planning can also keep you focused on the task at hand. Kelsie Olmsted, AR specialist at Outdoor Research (Seattle, WA), uses a neutral email to approach collections, gradually intensifying her language and consequences based on the age of the balance.

“If customers are being difficult when it comes to paying, we typically offer a small payment plan,” she said. “If there is further assistance required, we will offer an extended payment plan. We do place customers on a credit hold if their balance reaches over 30 days past due, so we try to use that as leverage to encourage payment before offering any payment plan.”

#4 Show empathy

Tough conversations at work demonstrate a leader’s respect for employees' feelings and experiences. This open dialogue validates their feelings, fostering a supportive environment that values all perspectives. By showing empathy, employees feel motivated and committed, enhancing collaboration and job satisfaction.

Rita Milano, CBF, district credit manager at Hajoca Corporation (Baton Rouge, LA), takes an active listening approach for collection calls with difficult customers. “I think showing sincerity and that you’re genuinely here to partner together can help take these conversations to the next level while gaining trust from your customers,” she said.

But empathy doesn't mean agreeing, being passive or tolerating mistreatment. Making space for emotion helps to release it. By letting the other person express themselves, you can uncover significant facts, assumptions and constraints, further developing your relationship.

Using a mix of empathy and strictness can help find a better and more adaptable solution. Olmsted's first credit manager taught her to be firm and assertive to earn the respect of her clients. “But I’ve had to adjust my approach to collections since moving industries, as sometimes you catch more flies with honey than with vinegar,” she said. “I’m thankful for that experience though, as it prepared me well for hard conversations with smaller shops.”

#5 Ask for help

Workplace disputes often extend beyond two people and involve larger groups. Seeking assistance before, during or after difficult conversations can ease tension, find solutions and provide varied viewpoints, either from peers or management.

Perhaps you’re having an issue getting through to a customer. Ask yourself: Are there senior managers in your or other departments who align with your values that you feel comfortable seeking feedback from? Or maybe you’re dealing with a collection call where the customer refuses to pay. Ask a colleague or manager to give you advice or reach out to that customer.

Even setting up a meeting with just a few people to explain how you feel about the situation helps. “Think of yourself as an advocate for the cause, and pitch how taking certain steps would help the company, its leaders and its employees,” reads a Harvard Business Review article.

#6 Lighten the mood

Studies show that using humor can significantly reduce stress, an undeniable part of tough conversations. Todd Kashdan, author of The Art of Insubordination, said that a sense of humor can help tremendously in social advocacy. “Humor allows us to be human, disarm others and save face,” Kashdan told Harvard Business Review. “It calls people in and doesn’t assume negative intent.”

According to a McKinsey & Company report, leaders with a sense of humor are seen as 27% more motivating and admired, making their employees 15% more engaged. Their teams are more than twice as likely to solve a creativity challenge.

The bottom line: Being able to navigate challenging conversations with finesse is a crucial skill that can set credit professionals apart in their roles

In recent years, credit cards have surged in popularity among customers within the B2B credit industry.

Why it matters: Knowing why this trend is happening is critical for B2B trade creditors as it holds the potential to alter financial strategies and influence business operations.

What they’re saying: “Severe inflationary pressures over the past three and a half years have driven margins down significantly, and more businesses have started to accept credit cards in B2B trade at a drastically accelerated rate,” Andrew Behlmann, partner at Lowenstein Sandler LLP (Roseland, NJ) said during a live NACM webinar, Just a Little off the Top: Strategies for Reducing the Growing Cost of B2B Credit Card Acceptance.

By the numbers: A recent eNews poll revealed that 60% of credit professionals said that the number of customers paying with credit cards has increased in the last 12 months.

Here are some reasons why more customers are converting to credit card payments:

Quick and easy

Credit cards offer instant payment convenience, simplifying customer transactions. “Credit cards allow customers to quickly reconcile their account, eliminating any check-creating process on their side,” said Jon Ulrich, CBF, credit administrator at Ziegler CAT (Minneapolis, MN).

Cost efficient

Customers can earn rewards and receive discounts, while trade creditors can save money too. Businesses can take advantage of discounts available from Visa and Mastercard, according to Sparks Solution Group. “Level II and III discounts provide lower transaction costs for B2B vendors compared to standard processing options because of the detailed transaction data provided,” the article reads.

Safer

Paying via credit card also offers more safety than debit cards, eCheck and ACH payments. In case of fraud, both sides of a credit card transaction receive protection, including refunds. “The convenience, security and benefits are why we're seeing our customers—no matter how big or how small—increase their use of credit card payments,” Ulrich said.

In turn, trade creditors benefit by payment integration, in which credit card transactions sync sales data with accounting, CRM and ERP platforms whereas checks and money orders are processed and reported by hand.

Yes, but: Credit card payments often impose a significant cost on many businesses. Credit card companies demand higher fees from companies that accept credit cards.

According to an Invoiced article, interchange fees typically comprise around 80% of the processing costs for each transaction. Assessment fees make up roughly 10% of all processing costs while credit card processor fees make up roughly 7% of processing costs. “As a result, we have seen an accelerated interest in the use of surcharges and other means to defray those costs in the past couple of years,” Behlmann said.

B2B creditors can apply a credit surcharge—a fee charged by a merchant on credit card transactions—to offset some or all the costs of credit card acceptance. But sometimes applying surcharges can push customers away.

What they’re saying: “After we initiated the surcharge, we thought it would taper down, but we saw an immediate halt, and within two months, almost 80% of the credit card services switched over to either ACH or check,” said Christian Pedersen, CCE, corporate credit manager at Emcor Services Aircond (Smyrna, GA). “More recently, third-party payment services had prioritized credit card payments as a vendor AP service, and we really saw an uptick in credit card transactions. We opted for credit card surcharging due to its easy and seamless transition.”

Types of Surcharges:

• Brand level: All Visa and MasterCard credit cards pay the same surcharge percentage.
• Product level: Different tiers of cards, such as Visa Platinum or Signature, pay different surcharges based on differing costs or acceptance.

Instead of surcharging, trade creditors can refinance and adjust prices. David Escobar, credit manager at Evapco, Inc. (Taneytown, MD), adjusts prices and uses cost-effective processing to stay competitive without compromising on transparency with their customers.

“Our focus is to deliver high-quality products and services while adapting to the newer payment practices,” Escobar said. “This way, we meet the customers’ needs and maintain the compliance with financial regulations.”

Credit card payments carry some increased risk as well. Customers can request chargebacks if they claim non-receipt of goods, receipt of damaged or misrepresented items, or unauthorized purchases, complicating dispute resolution for creditors.

What’s next: When implementing a surcharge program or making changes to your terms and conditions with respect to credit card acceptance, consult either your in-house counsel or your outside counsel for specific legal advice applicable to your situation. All adjustments and surcharges must be the same for all customers to comply with antitrust laws.

The bottom line: The rising use of credit cards in the B2B sector, prompted by inflation and cost-effectiveness, significantly affects financial planning and operations. However, businesses need to manage related processing costs to prevent losing customers.