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December 1, 2010
BCMA - It’s All About You! Welcome to the latest issue of BCMA News! This month’s topics… 1. An Avalanche of Bankruptcy Preference Claims Predicted 2. Who in your company is responsible to ensure tax exemptions are appropriately managed? 4. Plenty of Cash, But Paying Late. What to Do? 1. 1. An Avalanche of Bankruptcy Preference Claims Predicted Bankruptcy filings are down now, but the two-year statute of limitations for preference payment claims is running out on those that filed in 2008 and 2009. That included nearly 350 corporations with almost $2 trillion in assets, and experts are predicting an avalanche of preference claim lawsuits. “I haven’t seen this level of actions being filed ever before,“ Hal Schaeffer, president of D&H Credit, a 30-year veteran in the field, told CFO Magazine. Worse yet, he noted, compared with the 2001–2003 cycle of bankruptcies from the dot-com bubble, trustees are now going after even the smallest payments made to vendors, whether it’s “$50 million, $5 million, or even a few thousand dollars.” He attributed this aggressiveness to the “dry time” between 2004 and mid-2007, when trustees had very few dollars to go after because bankruptcies were rare. 1. 2. Who in your company is responsible to ensure tax exemptions are appropriately managed?Who in your company is responsible to ensure tax exemptions are appropriately managed, e.g., setting accounts as tax exempt, or contacting customers to get this information? We do ask for tax exemption certs when setting up new accounts, but there are some customers that claim they are exempt but refuse to provide the back up. In these cases we will still charge tax, but the customer just short pays the invoice. Second, does anyone work with a 3rd party resale tax company to assist you with who and who is not exempt from tax? Julie E. Osuna, Accounts Receivable Manager, Össur Americas, Inc. = = = = = = In our company, Customer Financial Services is responsible for this, although we do expect our point-of-sale sales reps to also ask for this information and obtain the certificates when they can. We do not use a third party; it is the responsibility of the CFS Manager to know the tax laws for the states they manage. However, we are exploring in-house technology within our document management software to help manage the certificates themselves more efficiently. Norma J. Fetherman, Chief Credit Officer, Allied Building Products Corp. = = = = = It is a joint effort between Credit and Sales to obtain the certificate. If the customer refuses to provide one, we do not take the sale unless it is a municipality and it indicates on the PO that they have an exempt status. Many times we complete the form and email it to the customer for signature to make it easy for them. If the customer short pays the invoice, we stop selling until we solve the issue. Trust me, it is not worth the headache when you are audited. We use Avalara.com. It works with our system. We have to input the info in the main system, and the tax software in order for the invoices not to be taxed and it will keep track of the expiration date. Sam M. Yassine | Credit & Collections Manager | Otto Environmental Systems North America, Inc. Appetite for Risk? Corporate earnings are up 28 percent over last year for companies in the S&P 500, according to estimates by Thomson Reuters. This robust performance is tempered by the fact that the top earners have been in the financial sector, which is now faltering. But factors within the earnings numbers are still impressive. “I tend to focus on operating cash flow numbers which look very, very healthy,” says Daewoo‘s Golden. He notes that there’s cash hoarding going on, with companies borrowing money for a lot of reasons. One of them is because there’s so much money trapped overseas, with companies facing huge tax, burdens when bringing it back. “So they’re borrowing at whatever the market will bare; extremely low interest rates,” he says. “We’ve been seeing lots of cash generation, and now a pickup in sales, which for us is auto parts, steel and other commodities.” He hesitates to predict whether these increased sales will be sustainable. But he’s not uncomfortable with customers’ requests for increased credit limits. Daewoo uses credit insurance heavily and he’s found the credit insurers’ risk appetite has risen. “Together with our ability to take risks on our own, we’ll be able to meet it,” he says. “But then there’s the problem of concentration where you’re so heavily into one customer that you can slowly but surely end up being in for more than the owners are. Sometimes it’s hard to explain to marketing, but, with 100 percent of the business, you also get 100 percent of the problems.”
Plenty of Cash, But Paying Late. What to Do? Customers with plenty of cash should be paying on time. What if they don’t? One credit manager we know assumes it’s an oversight and calls accounts payable immediately. And he’s found they don’t resent it. “They consider it a service and a courtesy for us to notify them of delinquencies,” he says. He’s careful to keep customer accounts “clean” by posting payments, credits, and adjustments immediately. “If we make any mistakes, we correct them as quickly as possible to eliminate miscommunication,” he emphasizes. And he’s found ways to make it as convenient as possible for customers to get in touch with him quickly or at least to get their questions answered and problems solved by: • Personally giving customers’ accounts payable staff his telephone number and extension. • Encouraging them to ask to have him paged if he’s not at his desk. • Giving the company’s receptionist the names of major customers’ accounts payable people. If they call and identify themselves, he’s instructed the receptionist to page him if he’s not at his desk. • Ensuring that credit staffers know the names of key accounts payable people and have ready access information on their accounts. If he’s not available, his employees can quite often address the customers’ needs. To learn more about subscribing to Credit Today, check out our web site at http://www.credittoday.com/ Credit App Processing- Inordinate Tension and Challenges There are many good reasons why some credit execs do NOT require a completed credit app. From our Benchmarking Survey: Checklists of 100 Items You Can Include on Your Credit App |