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Credit Management Experts Weigh in on Economic Climate of Industry

by Aaron Nelson on December 18, 2014

Credit Management

Planning for the future in today’s turbulent economy is no easy task, particularly in the credit management and financial services sector. Fortunately, decision makers have at their disposal numerous reports and indices to help keep track of economic indicators and aid in the prediction of growth or contraction. While no one index is more certain than another, the Credit Managers’ Index (CMI) is one to keep an eye on.

Produced monthly by the National Association of Credit Management (NACM), the CMI surveys around 1,000 financial professionals, accountants, and trade credit managers from across the manufacturing and service sectors. The report considers data including credit applications, extensions, and collections, and calculates its conclusion through a balance of favorable vs. unfavorable factors as reported by the participants.

Credit management professionals are well versed in planning and predictions. It’s a field that by nature is “oriented to the future,” and the same factors used to help clients conduct business with credible and creditworthy sources can also also serve as a bellwether for economic health. While other indices such as the Purchasing Managers Index (PMI) may provide a better snapshot of present economic state, the CMI’s strength is its focus on what’s next.

2014: The “Roller Coaster Ride”

2014 has been a down year for credit management, so hopes were high when the October CMI returned a sharply positive result after a particularly disappointing September. The NACM theorized that September’s score, the lowest in two years, could be an anomaly. Unfortunately, while November’s CMI still showed signs of economic growth, the numbers were markedly less robust than October’s. On a scale in which a reading above 50 indicates economic growth, November’s overall index was 55.8. A letdown to be sure compared to October’s 57, but still reflective of an economy that is slowly but steadily recuperating.

Closer inspection of the data does reveal some downward motion. New credit applications dropped to March levels, which along with an increase in credit rejections could indicate that credit is tightening and growth stalling. One factor that didn’t change significantly was the amount of credit extended. According to NACM economist Dr. Chris Kuehl, it suggests that fewer companies received credit, but the ones who did were getting more than they had in the past.

While the numbers are troubling, overall the CMI remains above the level of economic contraction. While it cautions that “the roller coaster ride is obviously far from over,” the NCMA concludes that “even with the decline, the readings are still thoroughly in the expansion zone. Growth will continue, but credit professionals may have to adjust their end-of-year expectations.

Signs of Life, Courtesy of the Credit Industry

With the holiday season approaching and a new year ahead, the financial world keeps a cautious but optimistic eye on the confidence of the credit industry. Beyond its functions as a predictive tool, the CMI also helps in tracking and comparing the long-term performance of more specific fields under the umbrella of financial services.

November 2013’s CMI score was a 57, the same as 2014’s October, an optimistic outlook bolstered by the collections industry. Less credit applications were rejected and less accounts were placed for collection, indicating that businesses were making efforts to get current with their credit. In 2013, third-party debt collection agencies recovered around $55.2 billion in total debt and contributing nearly $1.5 billion in state and federal taxes, a significant amount given the current climate and reflected by that year’s CMI.

The economy benefited from the boost in business confidence, while the healthy credit environment steered third party collections onto its current upward path. By 2022, the Association of Credit and Collection Professionals (ACA) projects 15 percent job growth for bill and account collectors, potentially employing over 450,000 individuals. As innovators in a thriving industry, third party collections professionals endeavor to find the latest in tools and solutions to better serve their customers and produce results in all economic climates.

We’ve previously discussed how well-utilized predictive data can make your business more effective, and indices like the CMI, PMI and others are invaluable considerations to include in your future planning. Though the recent report was troubling in the immediate sense, in the long-term the economy shows solid indications that it will continue on its gradual rise. In times of economic uncertainty, outside solutions may help you weather the storm. As a proven and committed provider, D&S Global Solutions can offer the expertise, innovation, and support needed to grow your company and guide it into the new economic future.

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