NACM and CLLA's Joint Legislative Conference; Business Credit Selected Topic
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NACM and CLLA's Joint Legislative Conference; Business Credit Selected Topic; National Association of Credit Management, Commercial Law League of America
Published by Business Credit Magazine, National Association of Credit Management
Dresner, Megan M.
May 1, 2002

 


 

Highlights of the Article:

Harry (Skip) Brandon and Gene Smith Founding Partners, Smith Brandon International (...) spoke next about the effects of terrorism. Brandon stated that the World Trade Center attacks on September 11 demonstrated a failure of the U.S. government. The failure was due to combined coordination and communication problems as well as problems in the legislative area.

He urged that those businesses having financial transactions overseas perform due diligence--you have to know your customer. Terrorism is a cheap and effective way to knock our system down. We have to protect our infrastructure, financial structure and lines of communication--and this can only happen if those having international business perform due diligence.

Gene Smith continued the discussion by calling for government intervention. The events of September 11 were an assault on basic human rights, she stated, and more specifically, on the U.S. Bill of Rights. The freedom of travel and the freedom of speech to which we are accustomed in the U.S. are no longer intact. Smith advised for some kind of government intervention--for example, regulation of movement. She also suggested that it is time to think about licensing Internet access, which needs to be done by the government--not through the private sector. It is also necessary to track source of funds: under the Patriot Act, businesses are required to know their customer(s). (...)

For the full article see below.




This past March 10--12, NACM and Commercial Law League of America (CLLA) members came together at the Crystal Gateway Marriott hotel in Arlington, VA for the Annual Legislative Conference to learn how the latest developments in Washington will have an effect on their companies and the way they are doing business.

David Berson, Vice President and Chief Economist, Fannie Mae, presented attendees with an overall look at our economic situation. He stated that the recession is almost over, and then went on to say that an over-accumulation of inventories in 2000 and early 2001--which resulted in a sharp reduction of production--was to blame. "However", he continued, "This was probably the mildest recession in American history."

There are good reasons to expect that the recession will end this year, he said. There are four things in particular to demonstrate that if the recession hasn't ended already, it will soon:

1. Varied expansion of monetary policy--The federal reserve eased eleven (11) times last year to bring federal fund rates down by 475 basis points. The federal fund rate today is 1.75 percent-the lowest it has been since the early 60s.

But, why isn't the economy surging, or why does it feel like we are in a recession? Berson explained that changes in monetary policy typically start showing an affect in the economy one year later. The Fed didn't start easing monetary policy until January of last year, so we are about 14 months past the time when the Fed started easing them--the normal time when we should expect to see an impact in the economy. And in fact, in the past few months, we've seen improved economic statistics.

2. Expansion of fiscal policy--a step-up in spending of homeland defense.

3. The Energy crisis plaguing the nation over the past year has dropped-off.

4. Refinancing of mortgages--people are taking advantage of lower rates to get lower monthly payments and in turn making other purchases, such as cars.

Harry (Skip) Brandon and Gene Smith Founding Partners, Smith Brandon International and Richard Ault, Jr. Ph.D., Executive Vice President, The Academy Group, Inc., spoke next about the effects of terrorism. Brandon stated that the World Trade Center attacks on September 11 demonstrated a failure of the U.S. government. The failure was due to combined coordination and communication problems as well as problems in the legislative area.

He urged that those businesses having financial transactions overseas perform due diligence--you have to know your customer. Terrorism is a cheap and effective way to knock our system down. We have to protect our infrastructure, financial structure and lines of communication--and this can only happen if those having international business perform due diligence.

Gene Smith continued the discussion by calling for government intervention. The events of September 11 were an assault on basic human rights, she stated, and more specifically, on the U.S. Bill of Rights. The freedom of travel and the freedom of speech to which we are accustomed in the U.S. are no longer intact. Smith advised for some kind of government intervention--for example, regulation of movement. She also suggested that it is time to think about licensing Internet access, which needs to be done by the government--not through the private sector. It is also necessary to track source of funds: under the Patriot Act, businesses are required to know their customer(s).

Andrew Smith, Assistant to the Director of the Bureau of Consumer Protection, Federal Trade Commission, led a very interesting discussion about identity theft, privacy and antitrust issues. Over the past five to six years, the FTC has taken the lead in the debate over commercial privacy. "We intend to continue that leadership role in the new administration, with an active enforcement program and many new initiatives," he stated. Continuing, he said that the FTC believes their focus should be on the misuse of information. "The problem isn't information sharing. Very few of us worry about the numerous companies that need to share our information to clear a check or to process an ATM transaction. The real concern, and the concern that is our focus are the particular uses of information that create the potential for these bad consequences," he said. These adverse consequences include identity theft and erroneous denial of credit or employment because of inaccurate information. "The events of September 11 make it clear that privacy is not, and cannot be, an absolute right." We must all be willing to make practical compromises between privacy and greater goals, such as increased security.

The FTC's past focus was directed toward online privacy. Smith explained that their current focus is directed toward the consequences resulting from the misuses of information. Their privacy agenda includes a number of major law enforcement and education initiatives that focus on reducing the adverse consequences to consumers, including:

* The creation of a national "Do Not Call List" for consumers who do not want to be on lists for telemarketing calls

* Proposing restrictions on the use of pre-acquired account information to reduce the risk of unauthorized billing

* Beefing-up enforcement against misleading spam

* Targeting pretexting, in which "information brokers" misrepresent themselves to financial institutions in order to obtain confidential personal information

* Enforcing privacy promises made by businesses

* Pursuing violations of existing privacy statutes and prosecuting perpetrators

* Fighting identity theft

* Seeking to encourage accuracy in credit reporting

Wanda Borges, Esq., Borges Donovan, Bruce Nathan, Esq., Davidoff & Mailto, and Charles Tatelbaum, Esq., Cummings & Lockwood, led a panel discussion regarding the proposed bankruptcy legislation, and provided interesting updates of several newsworthy bankruptcy cases.

One such case, of course, is the recent Chapter 11 filing by Kmart. Bruce Nathan explained Kmart's Trade Lien Program. To entice trade creditors to continue extending trade credit to Kmart on the same terms as they had established before its bankruptcy, Kmart is offering trade creditors a security interest in Kmart's inventory. If the trade creditor satisfies the requirements of the lien program, they are offered a junior inventory lien. However, if the creditor deviates in any way from the requirements of the program, they lose their security interest.

Kmart has complete control in this situation. If a creditor doesn't like the risks involved by extending credit, and would instead like to sell to Kmart on cash terms, Kmart has the right to refuse to do business with that vendor, Nathan said. If the trade creditor does satisfy all of the requirements and is accepted into the program and Kmart fails, the lien is uncertain because the vendor is behind Kmart's Chapter 11 secured lenders. Of course, this is very bad news for the general unsecured creditor, for there's not going to be much left--if anything. If they do receive something, they are going to have to wait a long time after the bankruptcy case is resolved, which could take years.

Nathan also discussed Kmart's critical vendor program. Under it, certain select critical vendors obtained payment of their pre-petition claims in exchange for their agreement to continue extending Customary Trade Terms during Kmart's Chapter 11.

Wanda Borges discussed the business justification standard for approval of actions by a Chapter 11 debtor's management.

Representative Neil Abercrombie (D-HI) was the luncheon speaker. He stressed the importance of the credit profession within the nation's economy. "You may be the most important people in the country right now in terms of the economic stability of the nation," he stated. He urged attendees to visit with their local member of Congress and educate them on what they should do in terms of legislation to restore the confidence of this nation.

NACM and CLLA's joint legislative conference provided attendees with the opportunity to learn about the latest developments in Washington in regards to important issues, such as the war on terrorism and the current state of the economy, as well as offering deeper insight into economic and political events which have taken place over the last year. NACM is hopeful that those who used the conference opportunity to voice their concerns to their representative on Capitol Hill regarding what kind of legislation is needed to restore confidence in the economy will see results over the course of the next year.

RELATED ARTICLE: A letter from Debra Grable, Credit Manager, Coast Crane Company

NACM Members:

I would like to thank everyone for the opportunity to attend the NACM an CLLA Joint Legislative Conference. When I received the telephone call from Don Conklin advising me that I had been awarded the scholarship, I was so surprised. This was the first time I had eve applied. When people ask how I won it, always state, all you need to do is apply for it--they're out there for you.

The entire time we were in Washington DC, I still could not believe I was there--not just being in an area of such great history but also being in the same buildings that house our elected officials, who pass laws that effect all of us. In meeting with the Senators or Representatives, I realized that these people really did care why we were there. Our goal was to discuss the need to bring the bill back to life for Bankruptcy Reform. At first, it was a little intimidating meeting them, but by the time Sherry Wood started explaining our concerns, it all fell into place. As a credit manager for Coast Crane Company, who has had dealings with the largest bankruptcy case (ENRON), the issues were something we need to have in place for our business.

In attending all the sessions, which were all presented by very well known attorneys on bankruptcy issues, I felt like I was given the most current information available. By meeting some new people from several different types of businesses, I became aware that some only had small bankruptcy experience, and were amazed by the impact large bankruptcies have on businesses.

This was the most educational and productive conference I have ever attended. I am planning to attend next year and look forward to it.

Again, I would like to extend my thanks to NACM.
Highlights of the Article:

(...) Although the economy is doing well, companies that want to conduct business in the global market should not throw caution to the wind, said Gene Smith, founding partner of Smith Brandon International, specializing in international investigative services. A significant sale can go sour after the product is delivered due to a lack of background knowledge and business intelligence, she told delegates. (...)

"Some business gurus advise Western-based businesses to set foreign sales targets of 40 percent of all business revenues. But any global ventures must take into consideration the potential risks as well as rewards," she said. (...)

The Internet enables companies to do business around the world by connecting them, but global connections also "create serious security concerns," said Harry Brandon, founding partner of Smith Brandon International. The "Love Bug" virus was created in the Philippines but quickly swamped computer networks around the world, he reminded delegates. "Is the credit information you have on file secure from hackers?" he asked the delegates. (...)

Even with the risks associated with the Internet, Brandon says companies have "no choice" but to embrace electronic commerce. "The goal is to do it right, in a safe, secure, protected environment." (...)

For the full article see below.




If credit managers felt they were somehow immune to the business effects of the digital revolution, electronic commerce innovation and global economic transformation, they discovered differently at "Exploring the New Frontier", NACM-Canada's second annual Credit Conference and Expo held in Toronto, Ontario on October 11 and 12.

The Internet brings disparate cultures together for social and commercial interactions. Global communication at Web speed changes both the nature of societies and the culture of business, conference speakers told the NACM delegates. In a world where almost every new business venture begins with an "E", geographic boundaries are disappearing, and companies are open 24 hours a day.

Instant digital connectivity creates a host of business opportunities and challenges, delegates were told. Credit managers need to protect corporate financial interests while supporting the development of new opportunities. Armed with new digital tools, they can process information faster and make decisions quicker. At the same time, they are dealing with more information from more sources than ever before. That's life on the new frontier.

OUTLOOK POSITIVE

When it comes to overall financial matters, "the global outlook for the next 18 months or so continues to be upbeat, not withstanding the sharp increases in oil and natural gas prices," Dr. Lloyd Atkinson, chief investment officer for Perigee Investment Counsel Inc., an investment and money management solutions firm, told conference delegates.

Growth is driven by the technology revolution, and the pre-emptive action taken by central banks, most notably the US Federal Reserve, to keep inflation in check. The result: US productivity has increased significantly at inflation-safe speeds. Inflationary pressures have been contained and there have been real gains in wages, salaries and corporate earnings.

While there will be economic slow downs, "they will be much more muted than in the past, and there is no recession in the five year forecast... Barring economic accidents, such as occurred in Asia in 1997, we continue to be very optimistic about the longer term," Atkinson said.

While business-to-consumer e-commerce ventures such as Amazon.com have received a great deal of media play, Atkinson called them "small potatoes" compared to business-to-business e-commerce. The old economy--automotive, financial services and other traditional sectors--are using the tools of the new economy to change the way they do business. For instance, General Motors will use the Internet to reduce distribution costs by 30 percent over three years. This is a direct benefit to General Motors and suppliers who adapt to the news ways of doing business in the digital age will also benefit.

CAUTION ADVISED

Although the economy is doing well, companies that want to conduct business in the global market should not throw caution to the wind, said Gene Smith, founding partner of Smith Brandon International, specializing in international investigative services. A significant sale can go sour after the product is delivered due to a lack of background knowledge and business intelligence, she told delegates.

Even though there are risks, "there is no option to sit out e-commerce." Forecasters indicate that e-commerce will generate $ 1.3 trillion dollars in global sales in 2003. "Some business gurus advise Western-based businesses to set foreign sales targets of 40 percent of all business revenues. But any global ventures must take into consideration the potential risks as well as rewards," she said.

To successfully tap global markets, companies require strategic plans that integrate e-commerce into their overall business strategies before they build secure, transactional-based Web sites. And they cannot afford to overlook due diligence. "A classic case of 'it's too good to be true' is often accompanied by an online request--or even demand--to evaluate a proposal quickly and sign the necessary papers at once," she said. "If the prospect is so compelling, it can wait until it is given adequate review."

If a new client places an order from your web site, how do you determine who they are, if they have the authority to place such an order and if their company has the ability to pay? A company can "proceed on faith," or it can sort out all potential transactional dilemmas before hanging its shingle in cyberspace. The Internet is making it easier for companies to conduct business in foreign countries, and it is making it easier for companies to conduct credit checks on foreign companies, said Julie Gage, business project manager, Dun & Bradstreet Canada, a NACM-Canada Credit Conference sponsor. Companies like Dun & Bradstreet can help credit managers adopt to the new global reach of the Internet by providing them with background and credit information online or by e-mail, she said. Scott Blakeley, partner with Blakeley & Blakeley LLP, concurred. The most dramatic effect on the Internet "is the shortening of the credit cycle," he said. Vendors are using the Internet to conduct background and credit checks on com panies, cutting dramatically into the time required to approve credit.

SECURITY A CONCERN

The Internet enables companies to do business around the world by connecting them, but global connections also "create serious security concerns," said Harry Brandon, founding partner of Smith Brandon International. The "Love Bug" virus was created in the Philippines but quickly swamped computer networks around the world, he reminded delegates. "Is the credit information you have on file secure from hackers?" he asked the delegates.

Companies are even posting order acknowledgement forms and invoices on secure web sites that customers can access. While clients enjoy the freedom of accessing information any time, they want to be assured their credit and purchasing history is secure, or they will look for other vendors.

"Computers are efficient, and they empower employees, but there are downsides," Brandon said. Fraud cost North American businesses $ 350 billion in 1990 and $ 400 billion in 1999. Computer fraud grew exponentially over this same time. Damages pegged at $ 300 million in 1990 hit $ 50 billion in 1999. Over 25 percent of Fortune 500 companies are computer crime victims, and employees have perpetrated many of the crimes.

Risk avoidance is obligatory. Firewalls and virus protection are required to keep hackers out. ID, passwords and other internal measures, including forensic audits, are required to prevent or track down illegal activity by employees.

Even with the risks associated with the Internet, Brandon says companies have "no choice" but to embrace electronic commerce. "The goal is to do it right, in a safe, secure, protected environment."

STREAMLINING THE CREDIT DEPARTMENT

Using technology to do it right also includes employing information technology systems to make the credit department more efficient, says Brian Cheney, vice president technology, IHS Solutions Limited, an information management solutions technology company. Companies can increase collection efficiency without increasing operational collection costs using technology, he said.

Companies moved from paper-based document management to microfiche and then to CD-ROM. Now they are moving to Web-based data that puts information in the hands of clients. For example, if a vendor establishes a secure e-business web site, clients can search for the status of orders or for lost invoices based on purchase order number, product code or other criteria. Centralized credit databases and computer networks allow credit managers to fax or e-mail "lost" invoices from their desktop to overdue accounts while on the phone. This gives the credit manager the opportunity to say: "It's there now, so let's talk about the bill."

Information management automation is not a process than can be implemented overnight. Companies must review existing business practices and define ideal practices and then build systems that meet defined needs. Staff input is important if they are to buy into, rather than resist, automation, Clients also have to be kept in the loop and reassured that credit and payment information is secure.

Automating the credit department and integrating back office databases with web sites can be expensive propositions. The results, however, can include streamlined business practices, improved productivity and a higher rate of closure on outstanding accounts, Cheney said. "But why stop there?" asked Mark Visic, vice-president sales, Kubra Data Transfer Ltd., a document fulfillment, management and e-commerce company. Although companies have automated many aspects of traditional "print and mail" bill presentment, they still spend time and money printing invoices, stuffing and stamping envelopes and mailing bills. The post office then takes time delivering bills, which customers lose or claim they did not receive. Some companies have outsourced the entire print and mail process, which means a third party has to spend time doing what internal staff once did. And the post office is still involved in the equation. An automated electronic bill presentment and payment (EBPP) can reduce the time it takes to get invoice s in the hands of customers and payment in the bank, Visic said.

EBPP is an emerging technology that will eventually replace mail, fax and electronic data interchange (EDI). "EBPP offers corporations the ability to send invoices or statements to consumers via the Internet and process an electronic payment. Companies employing EBPP can post bills on their web site, with a financial institution or a third party clearinghouse. The client receives a secure notification and can view and pay bills online using credit cards, debit cards or other forms of electronic payment, trimming time off the invoice-to-payment cycle. The electronic bill is traceable from the moment the client receives notification, Visic said.

While 7 in 10 companies indicate that billing cost reductions are key to EBPP, the process can also be used to bring clients to a vendor's web site, allowing the vendor to market its brand and continue to sell to the client. "Now bill payment can be used to increase brand awareness, loyalty and sales," Visic said. "This represents a new opportunity for businesses to strategically use billing to sharpen their competitive edge in the new electronic economy."

EBPP is not yet simple or inexpensive to implement. "There is considerable sticker shock," said Visic. The return on investment is not there for every company considering it. Even so, the future holds some form of EBPP for most companies.

If you are still skeptical, look back over the last five years and review how the digital revolution has influenced the way your company does business, and the way you work. "When it comes to advances in technology, we haven't seen anything yet," said Dr. Atkinson. "In five to ten years, we'll look back at the technology we are using today the way we look back at dinosaurs." In other words, companies and credit departments will continue to evolve with the digital world and global economy, or face extinction.

Paul Lima is a freelance journalist and workshop leader based in Toronto, Ontario.

As companies begin to conduct e-commerce in the global market place and move to online billing and payment systems, they must tackle the issue of international law head- on, speakers at NACM-Canada's second annual Credit Conference and Expo told delegates in Toronto.

"In the virtual world, as in the paper world, commerce is based on contracts," said Marie-Pierre Simard, copyright lawyer with the law firm Brouillette Charpentier Fortin. Before a dispute over a virtual contract arises, credit managers need to know what makes virtual contracts acceptable to the courts. "Sometimes it seems as if the law cannot keep up with the information age. Yet, people involved in e-commerce must be able to identify the laws upon which e-commerce relies so that [virtual contracts] may be seen as a valid, enforceable, credible way to do business."

The federal governments in Canada and the US are developing national standards to govern e-commerce transactions, but many provinces and states have different laws, as do different jurisdiction around the world.

In some countries, only contracts with handwritten signatures are allowed in court. In other countries, an electronic signature (fax, scanned document, use of a PIN or password) is acceptable. Other jurisdictions--particularly in North America and Western Europe--will accept digital or encrypted signatures to prove a client ordered a product, and the vendor shipped in good faith.

In the US, electronic signatures cannot be "denied legal effect, validity or enforcement solely because it is in electronic form", said Scott Blakeley of Blakeley & Blakeley LLR. However, an electronic signature does not mean a company will win its case. All other laws for commerce come into play.

Blakeley also warned credit managers to be careful about what they write in email, especially if discussing a client's credit information with a third party. E-mail is easy to send, receive and forward, and sometimes people forget slander and conspiracy laws that cover the printed word, he said.

There are risks and opportunities associated with doing business in the global economy. When dealing with new clients in foreign countries, companies can protect themselves by insuring receivables, explained Angela Boston, business development manager, Export Development Corporation, which is a Canadian crown corporation that helps credit managers mitigate risk in 160 countries.

Her thoughts were echoed by Mark Hall, associate broker and credit insurance specialist with Dan Lawrie Insurance Brokers Ltd. Hall, which offers credit insurance for both domestic and global markets. "This is not a replacement for due diligence or a well-managed credit department," he said. "But it adds another layer of security."

If companies are having difficulty collecting uninsured payables, they can use training or technology to improve their ability to collect, or outsource collectables.

"Effective training can show people how to be assertive, not aggressive and collect more while retaining customers they want to keep," said Tim Paulsen of T. R. Paulsen & Associates, a company specializing in "creative receivables management."

Automating the collection process can boost the rate of return, says David Phillips, Guthrie Phillips Group (GPG) president and CEO. GPG's CAT2000 recovery system puts complete customer history in the hands of each staff member and schedules follow-up correspondence and calls. It can be connected to the company accounting system and updated the moment an invoice has been paid, so collectors are working from current information.

If collectables get out of hand and hiring more staff is not an option, then companies might look to outsourcing some or all the responsibility, says Robert Ingold, president of The Commercial Collection Corp. He admits some companies resent having bills turned over to collection agencies. However, his company can "work as an extension of the credit department" so the overdue client doesn't know the account has been turned over to a collection agency.

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