New Survey Show Cost Containment Still Key In Recovery

CFO Magazine has published an overview of survey results that show the recovery is slowing and financial officers need to take note. Their take is to conserve cash and perhaps hold off on increasing sales and marketing expenses. Reporting by David Katz:

Worsening credit conditions and tightened cash flow among customers stalled the nation's economic recovery in May, the findings of the most recent Credit Managers' Index suggest. While the CMI dipped less than a point last month, from 56.5 to 55.9, it was the first time the index recorded a decrease since January 2009.

Similarly, after six months of rising, the score for the amount of credit extended, a favorable factor, flattened out in April at 61.3 and then dropped to 60.2 in May. And for the first time since August 2009, the credit managers recorded a decreased score (62.1 to 59.7) for the dollars they collected from creditors between April and May.

To be sure, the scores were merely small drop-offs from several months of nascent recovery. "I don't think we're in a real crisis situation," says Chris Kuehl, economic adviser to the National Association of Credit Management, the organization that prepares the index each month. "It's really a sense of that we were growing pretty aggressively, and now we've flattened out." The numbers reinforce "the notion of a slow recovery," he adds.

The big takeaway for finance chiefs? "Resist entreating the sales and marketing departments to spend money," says Kuehl. "It's still a good time to be a conservative, count-your-pennies CFO."

Particularly indicative of the need for parsimony was the drop from 55.7 to 51.8 in the CMI score for the dollar amount of customer deductions from their billings. While that decrease between April and May did not reverse a long-term trend — the scores in January, February, and March bounced from 52.5 to 51.2 to 51.7, respectively — it did indicate some cash-flow problems among customers, says Kuehl.

The drop in customer deductions suggests that customers need to hold on to cash rather than pay off all their debt. That, in turn, is leading creditors to hold back on aiding other debtors with better terms or deductions. "Many of the companies, whether they are expanding are not, are saying, 'Now we need the consumer to come in and consume some of the inventory we've built,'" says Kuehl.

Based on a survey of about 1,000 trade-credit managers near the end of each month, the CMI is a compilation of scores based on whether respondents are seeing improvement, deterioration, or no change in the factors discussed above, as well as in sales, new credit applications, accounts placed for collection, and other factors.

http://www.cfo.com/article.cfm/14502312?f=home_featured

Sponsor: Cambridge Consulting Group are specialists in helping large financial contain costs by reviewing commercial real estate leases. Many firms are wasting millions of dollars paying landlords for commercial real estate they no longer use. Cambridge has developed a new strategy for companies facing cash flow issues from excess real estate- negotiated Lease Buyouts. Using their expertise Cambridge Consulting Group has saved Bank of America, Key Corp, Ford Motor Credit and other Fortune 500 firms, millions of dollars by reducing their real estate leasing payments. For more informtion please visit their website, www.ccgiweb.com