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There’s been a lot of talk on AFP’s discussion lists recently about yet another consequence of the credit crunch—firms getting hit for unused lines of credit.

What to do?

Try negotiating a tiered line of credit, says Jason Norma, controller at Belair Excavating. “In this case, the available amount would increase/decrease monthly, quarterly or at some point in the future. With a seasonal business, this is often a very good route to take. By closely matching the credit available to your cash needs by season, a company can minimize the unused portion, thus avoiding the heavy fees.”

Fees are partly a function of your company’s profitability and its capital funding [balance sheet] structure, adds Barrett Peterson, CPA, manager, accounting standards, procedures & analysis at TTX Company. “If profits are modest and variable, or your debt is too much of your capital, standby fees will be higher. Cash balances can be maintained at somewhat higher levels to compensate the lender, although the environment in early 2009 does not aid this option. A shorter term for the line may help, although renewal risk is increased. An early out clause for certain conditions might lowered the fee rate, although risk of loss of the credit line increases.”

More to come in the next issue of Payments.

Look for July AFP Payments soon. 
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• AnOldieButaGoodie: A 4,000-year-old concept may be 1 solution to the current problem of tight credit. http://blogs.afponline.org/Payments/ #

• AnOldieButaGoodie: A 4,000-year-old concept may be 1 solution to the current problem of tight credit. http://blogs.afponline.org/Payments/ #

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Average annual salaries for financial professionals increased by 3.4 percent in 2008, more than 13 percent higher than the national average but less than the 4.5 percent increase reported for 2007, according to the Association for Financial Professionals’ 2009 Compensation Report.

Managers of Treasury/Finance got the most respect, earning the highest percentage increase at 5.7 percent, but down from 6.6 percent for the same title in the prior year.

Executive-level treasury and financial professionals earned the highest percentage increases in base salary in the 2008 survey, but middle management outpaced them this time. The executive level (CFO, Vice President of Finance, Treasurer, Controller/Comptroller, and Director of Treasury/Finance) earned 3.5 percent salary increases compared to 3.7 percent for middle management (Assistant Treasurer through Assistant Cash Manager). Within the executive tier, treasurers reported slightly larger increases than CFOs, 3.9 percent compared to 3.2 percent.

Read more highlights of the survey here. The executive summary can be found here. Listen to AFP Research Analyst Karen McClelland break down the key findings here. Learn how to use the survey results to manage your career path in an August 18 webinar.

A 4,000-year-old concept may be one solution to the current problem of tight credit.

Factoring is the selling of accounts receivable balances at a discount, and has been around since Hammurabi ruled Mesopotamia. It’s more popular in Europe than America, says Sarsha Adrian, Senior Consultant, Graber Associates LLC, but with lines of credit so expensive it is an idea to consider.

PRO:
• Factoring is the purchase of receivables for immediate working capital. There’s no debt incurred.
• Traditional asset-based bank lending uses the assets as collateral for a loan. The client is creating debt on the balance sheet.
• Factoring works. It is a quick way to get vital cash to fund operations.

CON:
• Factoring can be expensive because factors assume the risk. Typically:
o A one-time administrative fee of 1%
o A fee of 1% for every 10 days until payment is received from the client’s customer (debtor)
o Example: for a 30 day invoice payment = 1% + 3%. The annualized return = 3% x 365 days/30 = 36.5%.
• Most factors will require that a monthly minimum dollar amount of invoices be factored for a period of time, typically 12 months.

Learn more about factoring by emailing Ira Apfel at iapfel@afponline.org, or subscribing to Payments by clicking here.

Could the Obama Administration’s financial regulatory overhaul make it more difficult and expensive for corporate treasury to invest short-term funds? At least one observer thinks so.

“We think this constrains the money market, which will force more money market activity into the banking system and reduce options available to corporate treasurers and increase their cost,” said Anthony J. Carfang, a partner with Treasury Strategies.

Carfang was referring to a line in the proposal (on page 38) that calls for the the President’s Working Group on Financial Markets, in its efforts to reduce runs on money market mutual funds, to consider eliminating the ability of a MMF to use a stable net asset value.

“When the net asset value of money funds fluctuate they become less attractive for corporate treasurers,” said Carfang. “Most treasurers tell us they find that less attractive and it will reduce their investment in money market mutual funds. If that is enacted, less cash will flow into money market mutual funds. It will result in more money going back into the banking system and away from the money markets. We also think that because regulation will be intensified that money markets will become a little more expensive for corporate borrowers. Options will be limited and limited options will be more expensive.”

AFP also is concerned: The proposal could “increase the safety of the MMFs but all of these items have costs associated with them that could decrease the attractiveness of investing in MMFs.”

AFP members should send comments to Jeanine Arnett, AFP’s Government Relations Manager, at jarnett@afponline.org, or 301.961.8853.

As part of President Obama’s plan to overhaul the financial regulatory system, the White House has released new guidance on the regulation of all over-the-counter derivatives markets. The Administration wants to create comprehensive regulation of OTC derivatives, including credit default swaps that meet the following public policy objectives.

Read the rest of the story here.

Working on an upcoming “Problem Solved” case study for Payments, the lesson for corporate treasury professionals was clear: Do your homework before starting a card acceptance program for customers.

Aaron Bills, COO of 3Delta Systems, made that point when he told me about a client that started one as a convenience to customers. The program worked great when card sales for Lincoln Electric were small. When sales grew exponentially, however, interchange fees skyrocketed and Tony Zalar, Director of Customer Credit Services and Sales Support with Lincoln, had to drastically re-think the card acceptance program.

So did Lincoln have a happy ending? It’s called “Problem Solved” for a reason. Look for the details in a future issue of Payments.

Look for July AFP Payments soon.
Current Payments Issue | Join Payments mailing list

With virtually no NFC-enabled “smart” phones available in the U.S., according to Mercator Advisory Group, what’s the next best thing?

Banks in North Carolina, Georgia and Kansas with combined assets of $1.5 billion were seized by regulators last week, costing the U.S. insurance fund $363 million and pushing this year’s tally of failures to 40.

Regulators this year have closed the most banks since 1993 (i.e. title reference) as a loss of 6 million jobs since the recession began contributes to mounting home foreclosures and loan delinquencies. The U.S. economy contracted at a 5.7 percent annual pace in the first quarter. More than a quarter of all states have unemployment rates higher than 10 percent, the Labor Department said last week.

The FDIC classified 305 banks as “problem” institutions in the first quarter, a 21 percent jump from the fourth quarter and the highest since 1993, the agency said May 27. The agency doesn’t identify problem lenders.