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Measuring credit and collections resultsOur society has many scorecards. In sports, we have many, from goals against averages in hockey and batting averages in baseball, to how well we’re doing at work with our annual performance review. Well-developed and understood measurements help:
Many of the most common measurements in credit and finance are historical measures, measuring things that have already happened. Fewer measurements use targets in the future. That’s not going to change but we’ll discuss that another week. The most common measurement is Days Sales Outstanding (DSO). This metric is an indicator showing both the age, in terms of days, of a company's accounts receivable and the average time it takes to turn the receivables into cash. DSO can be compared to industry and company averages, as well as company selling terms (e.g., Net 30) for determination of tolerances by the company. There are several methods of calculating DSO. Regular DSO measures the time it takes to collect your receivables. It provides some (but not complete) understanding of the company's internal collection efficiencies. Three financial numbers are used for calculation…
What kills businesses
The good, the bad and the ugly:StatsCan reports corporations earn record profits in 2007Canadian corporations earned record operating profits of $262.5 billion in 2007, a rise of 7.8% from 2006. Banking, retail, wholesale and petroleum refining industries led the increase. However, about half of the 22 industry groups surveyed by Statistics Canada lost ground in the quarter, with the manufacturing sector reporting the biggest decline. Retail sales rose 7.5% to $433.2 billion and profits rose to an all-time high of $16.5 billion from $13.6 billion in 2006. Clothing, department and other general merchandise stores made gains, as profits increased 26.3% to $5.6 billion. Retailers of furniture, home furnishings and appliances earned profits of $1.9 billion, up from $1.1 billion in 2006. Wholesalers earned operating profits of $19.1 billion in 2007, a 12.1% improvement over 2006. Manufacturers earned operating profits of $45.0 billion in 2007, up 5.4% from 2006 levels. But much of the gain was concentrated in the petroleum, food, computers and electrical products, while other manufacturers did not fare as well. Operating profits fell 5.5% among the remaining manufacturing industries last year.
The credit manager’s four-legged research stoolAs you may have discovered by now, it is possible to find information about companies in premium services that you’ll not find on the web. Conversely, you can unearth information on the web that you’d never locate in premium services. Ideally, the most comprehensive search on a company (or any topic for that matter) includes alerts (free and premium), a search on the public web, complemented by another on a premium service, followed up with some primary research (discussion with a real live human, in person, by email or over the phone). Why is this four-point approach preferred? Because not everything that counts is in one place, or online. As you will appreciate, access to the Internet does not mean that industry credit meetings can be skipped, customer visitations eliminated or relationships with credit colleagues neglected. A word about webcasts As a researcher, you need to be aware of the changes taking place in the world of webcasts, the Internet version of the conference call. Some companies now use the web as a preferred method of communicating with investors. That means you. So take a look at the main players providing these services to corporations. Read more >Recent credit articles
Winning and collecting in small claims courtIt is not enough to win in court because although the paper you receive from the court states that the defendant owes you x amount of dollars it does not mean you will collect your money. There are four important steps to ensure that you win and collect your judgment. If all you care about is suing for the principle of it without any concern for collecting your money, this article is not for you. The four important steps to improve your chances of winning and collecting in Small Claims Court are: 1) Confirming that the defendant has assets to seize so you can realize on your judgment; 2) Ensuring that you have sued the proper parties and added all possible defendants; 3) Ensure you serve the defendant properly and meet all procedural deadlines; and 4) Hire competent legal representation if a trial is necessary.
STEP 1: ASSET CONFIRMATION Corporate defendants have 4 main assets, their bank account…
Bankruptcies continue downward trend in CanadaDespite the economic news of late, bankruptcy statistics released for the calendar year 2007 by the Office of the Superintendent of Bankruptcy showed a 6.6% decrease in the number of business bankruptcies in Canada, 6,307 compared to 6,756 in 2006. Liabilities, however, were greatly increased, 16.1% to $14.511 billion from $12.495 billion in 2006. The total number of commercial proposals for 2007 increased 6.8% to 3,241 compared with 3,036 in 2006. Companies Creditors' Arrangement Act order (CCAA) figures continue to not be counted, and there was no estimate of the number. Receiverships were even, totalling 582 compared to 585 in 2006. Of these, 420 were private receiverships and 162 were court-appointed…
Can you collect interest on your delinquent accounts?If you want to collect interest on a delinquent account, your invoices or the payment terms in your contracts must indicate that interest charges will apply to delinquent accounts. Are your interest terms enforceable? Various statutes and the common law (judge-made law) dictate how much interest you can charge on an outstanding account. If you do not pay attention to these rules, your interest terms will not be enforceable.[...] PENALTIES V. LIQUIDATED DAMAGES Some contracts require a debtor to make a lump sum payment in the event of a default on the contract including a failure to pay invoices when due. This lump sum payment may or may not be enforceable in the courts depending on whether it is a penalty or a measure of liquidated damages. A penalty is usually a punishment for the breach of a term of the contract including, but not limited to, a failure to pay. The monetary amount of the penalty has no real connection to the breach involved.
World economy: A further rise in insolvencies in 2008In a 2007 global environment marked by slight slowdown, but which finally proved better than expected, business insolvencies rose by a modest 5%, avoiding a return to the levels of 2005 or earlier. The overall figure, however, disguises contrasting situations in different countries. The US saw gross domestic products (GDP) growth slow significantly, from to 2.9%in 2006 to 2.2% in 2007, and at the same time posted a very big increase in insolvency figures, the latter due admittedly to bankruptcy law changes at the end of 2005. Western Europe presented a varied landscape, with the economies of three large countries in deceleration: Germany, France and Italy – the motors of the euro zone. But Great Britain, Spain, the Netherlands, and especially Ireland all continued to perform remarkably well. In terms of insolvencies…
New bankruptcy rules may come into effect in mid 2008Bill C-12 creating new bankruptcy rules received Royal Assent on December 14, 2007 but has not yet come into force. The Government will need time in order to set up the major change, Wage Earner Protection Program (WEPP), including program design, infrastructure development, staff training, and prepare the WEPP Act regulations. Here is a summary of the new provisions, when they come into force: • An amendment to section 66.11 of the Bankruptcy and Insolvency Act, specifically, a "consumer debtor" is now defined to mean "an individual who is bankrupt or insolvent and whose aggregate debts, excluding any debts secured by the individual's principal residence, are not more than $250,000". Once the new rules are in force, consumer proposals can be filed by individuals with more than $75,000 but less than $250,000 in debts. Under current rules debtors owing more than $75,000 could only file a proposal under Division I of the Bankruptcy and Insolvency Act. • In a Division I proposal a meeting of creditors must be held within 21 days (instead of the 45 days creditors have to consider a consumer proposal), so time pressures sometimes may it difficult to get creditor agreement. In addition, a Division I proposal requires a 50% plus one majority in the number of creditors, and a two thirds majority in dollar value to ensure passage. This is a change from the simple majority of creditors required in a consumer proposal.
The changing world of creditTimes have changed… From local companies dealing with mainly other local companies to national and global dealings with companies whose people has never been met. From many customers to fewer but larger customers. Yet much remains similar. Assessment of credit worthiness, dealing with billing errors, collections, litigation in a few cases, managing, hiring, training, terminating, dealing with sales and upper management and large customers who dictate their terms. In my world, delinquency remains far and away the biggest challenge for many companies. One credit manager recently put it as simply as I could: “Despite putting in place all the proper processes, getting credit applications, informing customers of terms and trying to get at delinquent customers as quickly as possible, my DSO went up 5 days in 2007. What else can I do? Management is at me to get it down.” As an aside to this, the company added nearly 1,000 new customers in 2007, with no increase in staffing.
Impact of the credit squeeze on mergers
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| Credit manager's corner | February 18, 2008 |
Some updates have been made on the new cheque specifications and cheque imaging recently.
Can cheque images be used as evidence in court?
Yes, both the federal Evidence Act and the parallel legislation in most provinces have already been amended to make explicit reference to the admissibility of electronic records in court proceedings. Further, most jurisdictions have well-established business record and banking record provisions that could be used for admitting an image in evidence as proof of a cheque.
In addition, amendments to the federal Bills of Exchange Act that came into force in April 2007 will reinforce the legal framework for cheque images. The new provisions confirm that an image of a cheque or other bill of exchange that is captured by a Canadian Payments Association (CPA) member financial institution (or on its behalf), in accordance with CPA rules and standards, will be legally equivalent to the original item and may be used for all purposes. Of note, the legislation also refers specifically to the admissibility of these images in evidence “for all purposes for which the eligible bill would be admitted in evidence...” The CPA rule and standards related to images are expected to come into effect in 2008.
| Bankruptcy corner | February 18, 2008 |
One of the most popular features is the insolvency case law summaries prepared by the law students from the Office of the Superintendent of Bankruptcy (OSB) Student Recruitment Program, Ian Aversa and Grégoire Major. We present a case of a series of summaries that is still worth reading.
Quebec Superior Court
Fréchette J.S.C.
Citation: 2005 CarswellQue 7638
Facts: In 2001, Bois Bissbeau Inc. (the “Bankrupt”) borrowed $125,000 from the Development Corporation of the community of the Mégantic region (the “Corporation”). The two shareholders of the Bankrupt company (the “Shareholders”) had mortgaged a property they owned. In April 2004, three days prior to its assignment, the Bankrupt paid the Corporation in full and the latter delivered an acquittance discharging the surety. In September 2004, a motion to cancel preferential payment was filed by the Trustee.
| Human resources management | February 11, 2008 |
The arts can provide us with tools for dealing with workplace communications. Below you will find seven tips from seven areas of the arts. These can all come in handy during workplace discussions and disagreements.
1. Use metaphors (from the world of writing)
If you part of a group negotiating a disagreement, and the group seems to be stuck, try this. Simply say something like, ”I know it feels like we are not making progress with this issue. However, if we look at this process from a larger perspective, it might help. I like the metaphor of the seasons. And right now, I would say we are in the Winter stage. It feels rather dark, cold and barren, right? But, just like the seasons, it’s not going to stay this way. We have planted an important seed here today and we just need time to let it take root. Let’s reconvene tomorrow after we’ve all had time to reflect.”
| Credit news briefs | February 11, 2008 |
The construction industry in Canada is set to continue another year of strong growth, according to an economic forecast report released jointly by the Canadian Construction Association (CCA) and the Construction Sector Council (CSC). This report is based on the construction outlook prepared by the CSC as part of its 2007 Labour Market Information program.
According to the forecast data, the overall construction industry in Canada will post a growth rate of 3.5 percent by the end of 2007. For 2008, the forecast suggests the industry will grow by 3.1 percent. However, some differences emerge between the residential and non-residential construction markets. It is expected that investment in the non-residential construction market will have grown by an impressive 7.9 percent in 2007, whereas the residential construction market will level off compared to previous years, slowing down by 2.4 percent compared to 2006. The same trend will be evident in 2008 - investment in the non-residential sector is expected to grow by 5 percent, and by 0.3 percent in the residential sector.
| Credit fraud | February 4, 2008 |
Despite efforts to strengthen and implement controls, over half of Canadian companies report being a victim of economic crime.
According to the biennial PricewaterhouseCoopers (PwC) Global Economic Crime Survey the average loss suffered by Canadian companies in 2007 increased significantly to US$3.7 million from US$600,000 in 2005. Globally companies suffered an average loss of US$2.4 million — an increase of US$700,000 from US$1.7 million reported in 2005.
Over the past two years, 62% of Canadian companies surveyed have strengthened existing controls or implemented new measures. Almost all (93%) of Canadian respondents indicated that measures currently present in their company were introduced due to the US Sarbanes-Oxley Act 404 and Canadian Multilateral Instrument 52-109. Yet of these respondents:
| Credit news briefs | February 4, 2008 |
Thanks to a close observation in all the countries where the group has some representatives, the research department realises some macro-economic and prospective analyses that allow short term and long-term views on international markets. It has developed a Global Business Failure Index that analyses the risks of buyer’s insolvency in individual countries, taking into account the size of respective national economies.
Forex markets: growing tensions in the international monetary system
The subprime mortgage crisis in the US brought unexpected collateral damage to the euro zone. Banks in Germany were not alone among the first casualties hit by a fall in their share prices. Moreover, the crisis suddenly raised expectations of a cut in US interest rates at a time when the European Central Bank (ECB) continued to brandish threats of a rate hike. This divergent evolution of interest rate expectations in the US and Europe sent the euro rocketing to wildly overvalued levels. To a lesser extent, the yen also suffered from the fall of the dollar, although this was limited by lowered expectations of a rise in Japanese rates.
| Collector's corner | January 28, 2008 |
Who are the people you collect from? Are they customers? Well sure they are…at least until the second payment is missed or they break a promise or two. If you work in a credit union or a similar environment, you may refer to these folks as members. I have heard some organizations refer to them as delinquents and others as debtors.
However, if one is around the business for any length of time, particularly if you work in or have a lot of contact with those folks who are at the end of their financial line…the odds are good that you have heard the disparaging reference of deadbeat.
| Financial statements | January 21, 2008 |
For the benefit of our readers, regardless of their level of experience, we are introducing a series of articles dealing with the analysis of financial statements, particularly as it relates to the balance sheet and its line items. This will give them an opportunity to make credit decisions based on the same criteria that have proven useful to those who have learned to interpret them judiciously.
The income statement – sometimes called “profit and loss statement, statement of revenue and expense, statement of operations, profit and loss account”, and “statement of earnings” – is a financial statement that summarizes how much a company received during the fiscal year from the sale of products or services, as well as the expenses it incurred. On the one hand, it indicates where the income comes from and how it is spent, and on the other, it shows if the earnings are adequate to assure the successful operation of the company and to generate dividends for the shareholders after payment of income taxes.
| International credit | January 14, 2008 |
Thanks to a close observation in all the countries where the group has some representatives, the research department realises some macro-economic and prospective analyses that allow short term and long-term views on international markets. It has developed a Global Business Failure Index that analyses the risks of buyer’s insolvency in individual countries, taking into account the size of respective national economies.
Forex markets: growing tensions in the international monetary system
The subprime mortgage crisis in the US brought unexpected collateral damage to the euro zone. Banks in Germany were not alone among the first casualties hit by a fall in their share prices. Moreover, the crisis suddenly raised expectations of a cut in US interest rates at a time when the European Central Bank (ECB) continued to brandish threats of a rate hike. This divergent evolution of interest rate expectations in the US and Europe sent the euro rocketing to wildly overvalued levels. To a lesser extent, the yen also suffered from the fall of the dollar, although this was limited by lowered expectations of a rise in Japanese rates.
| Credit Internet | January 7, 2008 |
You have an account on hold. The customer has told you that the cheque has been sent by courier. (No doubt you insist on courier, especially near month end when you are in that frenzied dialing for dollars mode.) Now that you’re becoming proficient at going online, here are a few more handy tips that can save you time.
The good news is that you can use the tracking number to confirm when, or if, the courier package has left. Tracking online at www.fedex.com, www.ups.com or on the sites of other large couriers is easy. Of course, you’ll only know that an envelope has been sent. The contents will remain a mystery until you open it. The bad news is the cheque is made out for a dollar, the amount outstanding less deductions!
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