Dr. Aric Krause with Westminster College joined ICEL in April to present his annual economic update. He started by noting that the economy is not as bad as it could be, but we are still looking at several serious challenges. He summarized by stating that “things are murky.”

On the positive side, Aric pointed out that several industries are rebounding nationwide, including professional and business services which encompass credit. Also, the national bankruptcy rate started to decline in 2011 and household debt decreased dramatically in the years between 2008 and 2011. Both unemployment and under-employment are also dropping. In Utah job creation is outpacing the rest of the United States, and almost every industry in Utah has improved, including construction. The state’s poverty rate is the third lowest in the country.

On the other hand, construction is still contracting nationwide. Long term growth has continued to be in government, leisure and hospitality, education and health services, most of which is tax funded. Consumer confidence still has not hit numbers high enough to indicate an economic growth phase. Income, in terms of purchasing power, is at the same level as it was in 1986 and the percentage of home ownership has decreased dramatically since 2008. More Americans now live in poverty, fewer Americans have health care, and more Americans are behind or delinquent on their mortgage payments. In Utah, salaries are at only 80% of the national average, and on average, those salaries support 20% more people.

View full article

Information for Subcontractors and Suppliers: The State Construction Registry (SCR) allows subcontractors and suppliers to protect lien rights.

By filing a preliminary notice through the SCR system, subcontractors and suppliers alert property owners, banks, title companies and general contractors to their involvement in a project and expectation of payment.

This helps those with the money to oversee that payments navigate down to the appropriate parties, especially when there are multiple levels of subcontractors.

The SCR system also helps keep subcontractors and suppliers informed by providing automated email notifications when additional Preliminary Notices or Notices of Completion are filed on any of their projects. Automated notification of the Notice of Completion is important because it notifies subcontractors and suppliers that they have 90 days or less to file a lien if they haven’t been paid.

Key Filings for Subcontractors and Suppliers: Preliminary Notice: Anyone working on a construction job or providing materials for a job has 20 days after they started working on the job to file a Preliminary Notice. However, the 20 day rule changes at the end of the job. If a Notice of Completion is filed for that job, all remaining Preliminary Notices must be filed within 10 day after the Completion is filed.

Remaining to Complete: On a small number of jobs, an Intent to Complete is filed by the Contractor. After an Intent to Complete is filed, anyone who has filed a preliminary notice must file a Remaining to Complete statement within 20 days. This filing informs everyone if the subcontractor or supplier has not been paid yet.

Filing Tips for Preliminary Notices: View full article

The construction industry, like many others, has been hit hard with the economic down turn. The bottom falling out of the construction industry has made us realize that our trade is not a necessity, but a luxury that most people can live without or put off indefinitely. We find ourselves asking different types of questions like “How can we” instead of “Who should we.”

Our education and experience tell us that as creditors and collectors, we can’t have a lenient credit and collection policy. Credit policies and procedures should be stringent and well researched. There must be a careful evaluation of a company’s ability to pay back the amount of credit we have entrusted to them. Collection policy should enforce the terms of the extension of credit as set forth in our credit policy. If you choose to be lenient in one, you should be very stringent in the other. This is a must to be successful.

You just found out that the customer you sold to last week is insolvent. Now what?!? Actually, there is something you can do.  Reclamation.  It isn’t a guarantee of payment but it does improve your chances.

Let’s start by clearly stating the right of reclamation applies only to the goods delivered to the customer by you. You have no right of reclamation for any other goods. Next, it applies only to “goods.” “Services” are not covered. Making the demand for the return of your goods does not need to be complicated. But, if your customer actually files a bankruptcy petition you will need an attorney.

The right of reclamation under the Uniform Commercial Code (UCC) allows credit grantors the right to reclaim goods when the creditor discovers the customer received goods while the customer was insolvent. The demand for reclamation must be in writing and within 10 days of the date your customer received the goods. There is no prescribed form but you need to make clear who you are, delivery dates, what the goods are and that you want them returned because you understand the debtor (your customer) does not have the ability to pay for the goods. If the customer files a petition in bankruptcy within that 10 day period, you then have 20 days to make the demand. In bankruptcy situations the bankruptcy court can deny the reclamation claim, even a properly made claim, but the court should grant the requesting creditor a priority position in the bankruptcy estate in exchange (assuming the goods are still in your customer’s possession.)

What?! You exclaim. Yes. The right of reclamation is subject to the rights of a good faith purchaser in the ordinary course of business. If you remember your NACM Credit Law Class, a good faith purchaser is someone who purchases in good faith from a seller of goods who deals in those goods. The good faith purchaser is unaware of any problem. Therefore, if your customer sold inventory in the ordinary course of his/her/its business, you have no recourse against the customer’s customer for return of the goods. You may make the claim for everything you delivered during the covered period but it will only apply to what is left. So if you are in the food industry selling to restaurants, reclamation won’t do you much good. If you sell raw materials or hard goods that take weeks to months to re-sell or equipment that is used in your customer’s business, reclamation is an option for you.

Also, if another creditor has a floating security interest in goods being sold by your company, your reclamation claim may be behind that secured creditor.

The bankruptcy code provides for reclamation claims as well. The short statement is section 546(c) of the bankruptcy code allows for a claim to be made for goods sold within the immediately preceding 45 days, unless a bankruptcy petition is filed within that period and then the claim must be made within 20 days of the petition. The claim needs to be in writing.

The last major revision of the bankruptcy law, BAPCPA, made some changes to reclamation. If you didn’t make a timely written demand pursuant to UCC section 2-702 or 11 USC section 546(c), section 503(b)(9) of the bankruptcy codes still allows a claim for goods sold within 20 days of the bankruptcy petition. There are still unanswered questions such as the method and date of valuation i.e., retail, wholesale or liquidation value, the date of sale, the date of the petition or the date of hearing. Other questions include when must the claim be made and when will the claim be paid? The courts have not stated a deadline date but it’s likely the courts will set claim bar dates which could be separately stated or could be part of the general bar dates as set forth in the notice of bankruptcy.

In general, if you timely find that your customer is insolvent, you should make a reclamation demand. They can be as cheap as a simple certified letter if the bankruptcy has not yet been filed. You may actually get your goods back. I know that isn’t what you really want but it is better than nothing. You may enter into talks that allow you to reach a payment plan, or simply payment. And if bankruptcy is filed, you may find yourself in a higher priority than you would have had otherwise.

Note: The statements made herein are general in nature and should not be substituted for the advice of competent counsel.

Days Sales Outstanding (DSO) measures the average number of days it takes a company to collect payment of invoices. Tracking DSO helps a company determine their collection effectiveness and may indicate whether current credit policies and procedures require modification. In the current economy and shifting industry conditions, it is particularly important to monitor collection effectiveness and bad debt write-offs.

DSO Calculation:

Accounts Receivable Total/Sales per Day

Example:

150,000 Accounts Receivable/,257,000 Annual Sales/360 days per year

OR

150,000/3,492 = 43 days

There are a number of ways to calculate DSO sales per day:

� Annually (annual sales total/360 days)

� Monthly (monthly sales total/30 days)

� Quarterly (quarterly sales total/90)

Because atypical sales numbers impact DSO, a three month rolling average may be used to minimize distortions (previous 3 month sales/90).

Terms of sales and credit policy both impact DSO. The closer the DSO is to your terms of sale, the more effective your collection efforts.

When DSO is reduced, more internal operational cash is available to fund company operations and reduce interest expense. How does your DSO compare to other companies in your
industry? Industry specific data by *SIC/NAICS Code are available from Annual Statement Studies http://www.rmahq.org and Credit Research Foundation http://www.crfonline.org

*SIC = OSHA’s Specific Industry Classification system

NAICS= North American Industry Classification System

Other Credit Function Measurements:
Best Possible DSO
Average Days Delinquent
Collection Effectiveness Index
Percent Current
Percent AR Greater Than 60 Days
Percent AR Greater Than 180 Days
Gross Bad Debt as % of Sales

Lessons learned in a credit department of a business may be costly. How often could a bit of knowledge have saved thousands of dollars - if only they’d known.

The Basics That Every Credit Department Should Know:
*The customer’s legal formation where is the financial strength and who is legally liable for debt.

*The 5 C’s of Credit the essence of evaluating customer information and making good credit decisions.

View related article on The Five C’s
The Five C’s of Credit in Today’s Economy

View full article

10. Your savings account is in the ashtray of your car.
 9. The only thing your credit card is good for is scraping frost off your windshield.
 8. Your medical plan is not to get sick.
 7. Your financial planner told you to buy lottery tickets.
 6. Your Retirement plans include getting your own place.
 5. The stock market crashes and it doesn’t affect you.
 4. Your resume includes your high scores on video games.
 3. You are in the petrochemical business because you pump gas for a living.
 2. You think the NASDAQ 400 is a stock car race.
 1. Your Ph.D. stands for posthole digger.

Fall Semester beings August 24th
Questions? Contact Georgette Bevan, CCE GBevan@nacmint.com or 801-433-6116.

Invoice every business day.
The sooner you present the invoice to your customer, the sooner it can be processed and payment received. Invoices that sit in limbo tie up money that could be used to run the business. Cash flow is king.

The FTC posted a great article with links and information about:

• Protecting yourself from financial scams
• Getting your Free Credit Reports
• Protecting yourself from computer virus and spyware-free.

Full article

NACM proudly unveiled the National Trade Credit Report, featuring credit scores and “days beyond terms” statistics among tools designed to provide specific trade payment data drawn from a database of more than seven million trade lines, during Credit Congress’ packed Super Session. Though already available, it was the first major public announcement of the evolved product. What followed was a steady stream of credit professionals looking for a demonstration and to ask questions about it.  For More information and sample report click here