September 9, 2010
President Barack Obama unveiled a new plan this week to allow businesses to write off 100% of their new investment in plants and equipment through 2011. The proposal is part of a new round of economic measures designed to jump-start growth and job creation ahead of November's midterm elections.
In a speech in Cleveland, a city hit hard by the recession, Obama framed the break as a boon for both larger and smaller businesses. "I'm proposing that all American businesses should be allowed to write off all the investment they do in 2011," said Obama. "This will help small businesses upgrade their plants and equipment, and will encourage large corporations to get off the sidelines and start putting their profits to work."
Under current law, companies that spend money on new factories or new equipment may deduct the full cost, but only over the course of the next three to 20 years. Specifically, the new proposal would allow companies that invest in expansion and new equipment to deduct the costs of these investments this year, through the end of 2011, giving them an immediate source of cash. The break would also be retroactive to September 8, 2010, the day it was announced, meaning that it wouldn't be long before businesses used the tax break as an excuse to ramp up growth spending.
"If the manufacturing sector is indeed the key factor in pulling the economy along, these tax breaks could be very influential," said NACM Economic Advisor Chris Kuehl, Ph.D. "The assumption is that many companies have been trying to decide if the time is right to make the decision to purchase new equipment or to expand operations. They have already started to pursue these strategies as they look to these new export markets as they know they need new facilities and new equipment if they are going to be competitive."
"If the tax break is passed and is indeed retroactive, as planned, that may be enough to push that decision along," he added.
It's unclear if the proposal will make it through Congress before the midterms, although the White House and Congressional Democrats undoubtedly hope it will. The Senate returns from the August recess next Monday and the House next Tuesday, with a separate small business lending measure at the top of their priority list. However, lawmakers will leave session only a few weeks later in order to return to their districts for campaign season, meaning the proposal could have to wait until early next year.
Jacob Barron, NACM staff writer
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Economic growth from mid-July through the end of August continued in much of the nation, but the pace of such growth decelerated quite noticeably according to a newly unveiled Federal Reserve report.
The Fed's Beige Book, a roundup of economic conditions in various sectors of 12 national regions, found "modest" economic growth for the most recent period. However, the Fed study also acknowledged widespread signs that growth levels continue to disappoint from previous rebound predictions for mid-2010 and several areas' levels slowed significantly. The slower pace of growth was particularly noticeable in manufacturing, which had outperformed several other sectors throughout much of 2010. Sales and activity continued to advance in the sector, but not by as much as expected. Fed contacts in part blame a present lack of demand for construction-related products, especially in the Cleveland, Richmond, Chicago, Dallas and San Francisco districts.
Commercial real estate construction, which didn't have the benefit of such favorable news early in the year, continued to drag on economic growth with high vacancies and a lack of demand for new spaces especially apparent in the New York and Kansas City districts. There was, however, some reason for future optimism for commercial construction in Cleveland and Chicago. Additionally, Beige Book contacts indicated lending standards remained largely unchanged as did weak levels of demand for loans from wallet-conscious U.S. businesses.
The lackluster but not completely downtrodden tone read like a continuation of the last Fed tracking period. The July edition of the Beige Book was the first this year to include fairly candid admissions of a less optimistic economic picture than previously painted throughout 2010. Fed contacts noted the pace of economic growth rates actually slowed in multiple regions that had been improving previously, two districts experienced complete stagnation (Cleveland, Kansas City) and a pair where activity failed to remain stable, let alone advance (Atlanta, Chicago). They were particularly negative on short-term prospects for the commercial real estate sector, which has been and likely will be a recurring theme well into 2011.
For a breakdown from each of the Fed's 12 regions, visit the NACM blog, Credit Real-Time.
Brian Shappell, NACM staff writer
On Our Blog: eNews Story Update
Following the August 26 posting of the eNews story about ongoing problems with the newspaper business and subsequent bankruptcy filings, "Bad News: Media Bankruptcies Facing Tough Obstacles," new developments warranted an update to the story on the NACM website. Both the Philadelphia Newspapers and Tribune Co. cases have seen important changes.
Visit the NACM blog to view the story and in the future for news on a variety of important industry topics. NACM also regularly posts short updates on our Twitter account—You can find us under the moniker "NACM_National."
To sue or not to sue. That is the question creditors more often have to face among delinquent and, at times, deceitful debtors since the recent recession and not-so impressive economic recovery came to dominate business discourse. One of the factors making the decision so tough is that creditors are often simply not familiar enough with the litigation process to make the right call.
"I would say that most credit people actually do not fully understand the litigation process," said Bob Bernstein, Esq., managing partner of Bernstein Law Firm, PC. "Some think it is simpler and easier than it really is. Some are scared by it and think it is more complicated than it really is. Most haven't thought about the process of keeping (or preparing) records in the most effective way for introduction to a court. This isn't surprising since states differ on how the process goes."
Bernstein and Nicholas Krawec, Esq., fellow partner of the Pittsburgh-based firm, will help address some of the most important factors to consider during the September 14 NACM teleconference, "Things Your Creditors' Rights Lawyer Should Be Telling You Before and During the Litigation Process." Bernstein and Nicholas seek to empower creditors about the litigation process and, in particular, reasons to pursue a lawsuit. The pair plans to pay particular attention to leverage and negotiations before and during the suit process as well as "share some great war stories about what's worked and what hasn't."
"A lot of thought has to be given to when to pull the trigger and when to walk away," said Bernstein. "[Lawsuits] are easy to start, but when defended, not so easy to stop."
Brian Shappell, NACM staff writer
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The National Association of Credit Management (NACM) is expected to meet with officials in Sen. Sheldon Whitehouse's (D-RI) office following the conclusion of the August recess next week. The meeting will focus on NACM's recently-delivered response to legislation proposed by Whitehouse in late July.
For months, NACM and its Government Affairs Committee have worked closely with officials in Whitehouse's office on a new bankruptcy process that is better suited to meet the needs of small businesses than a standard Chapter 11. The process began in March 2010 when Whitehouse chaired the hearing "Could Bankruptcy Reform Help Save Small Business Jobs" in the Senate Judiciary's Subcommittee on Administrative Oversight and the Courts. Initially, NACM offered its support to several principles that any bankruptcy process should adhere to, most notably expediency, efficiency and fundamental fairness. NACM later clarified its position in response to a now-defunct suggestion that the Chapter 12 process be opened up and allowed to apply to small businesses.
In its newest letter, NACM offered specific objections to the Small Business Jobs Preservation Act (S. 3675), a bill introduced by Whitehouse that would create the aforementioned new bankruptcy procedure for small businesses. NACM has also aimed to make S. 3675 a bill that could address the Bankruptcy Code's preference statutes, the association's main concern since the beginning.
NACM originally received a draft of S. 3675 on the day of its introduction and was asked by Whitehouse's office to review the bill and offer suggestions in order to make the bill as fair and effective as possible. Following a series of meetings, the NACM Government Affairs Committee found several provisions in the legislation that posed a potential threat to creditors' rights, and used the letter to offer specific changes that would better protect unsecured creditors.
Stay tuned to NACM's eNews and the Advocacy page for future updates.
Jacob Barron, NACM staff writer
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The widespread and, at times, ultra-violent public workers strike in South Africa effectively ended Tuesday after nearly three weeks. Now comes what may be the even harder parts: recapturing some of the international business credibility the nation gained during a successful hosting of the World Cup earlier this summer and creating some type of stability in the nation that won't scare off business and investment opportunities. Even with all the bad press, the strike hasn't likely doomed the nation's potential status as an economic player entirely, instead perhaps just pushed it further into the future or lessened it, said one economist.
Predictions are piling up that what may have been an ill-planned public workers strike destroyed much the business gains South Africa made during the World Cup. The concern is that investors and businesses will be scared off because the illusion of stability that seemed to become apparent earlier this year was just that: an illusion. The nation's largest labor union, the Congress of South African Trade Unions (COSATU), spearheaded a lengthy public workers strike on August 18 after the government balked at demands for a pay raise of 8.6%, more than twice the rate of inflation. The violent nature of the strike rose to a level far beyond what was seen in Greece earlier this year or during the almost expected annual "strike season" in South Africa itself. Aside from expected clashes with police, the union-led labor revolt shut down many of the nation's public schools and much of its health system. Widespread reports depicted nurses and doctors being violently denied entry to or even removed from hospitals and clinics by angry mobs.
COSATU eventually called off the strike amid negotiations of a new labor deal with the South African government as bad public relations was mounting amid deaths at understaffed hospitals and multi-billion-dollar economic damage to a nation that had struggled, like many worldwide, with a deep recession in recent years. It did so even as many of the rank-and-file workers—apparently angered at both the government and its better-paid union leadership—balked at the idea because the government's offer did not rise to the union's original demands.
Mekael Teshome, associate economist with Moody's Economy.com, predicts short-term ramifications of the strike, but does not think the recent events truly hold the key to South Africa's economic future or will strip away all of the international goodwill gained from the World Cup. Among other factors, Teshome says unrest is almost expected for those paying attention to labor in the African nation.
"Tense industrial relations have been a part of the South African political and economic landscape for some time before the World Cup," said Teshome. "Although this (and fears of an electricity shortage) raised some doubts about South Africa's ability to host such an event, South Africans ultimately proved that they could. So I believe RSA could have a chance to regain international goodwill in the future."
Besides, Teshome noted that, while perhaps less socially or image-damaging than the most recent strike, ones in the recent past in the automotive and manufacturing sectors actually had a much more negative economic and trade impact despite being shorter in length. Teshome argued the longer-term effect on investor sentiment and trade relations may depend on the overall international economic recovery and what follows this latest domestic labor battle.
"I think we will have to see what happens next year," he said. "If the public workers strike inspires others and next year's 'season' is more severe than in years past, then that could be an indication that business conditions have worsened. In that scenario, the damage to South Africa's reputation as an investment destination will probably be lasting. However, for now, South Africa is still a G-20 economy and Africa's largest. Investor interest in the broader continent is likely to grow in the years ahead, and South Africa will be a key destination."
Brian Shappell, NACM staff writer
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Lawmakers often seem to trip over themselves when discussing the virtues of America's small businesses. They're seen as the drivers of job growth and economic vitality, but all that reputation will probably never change the fact that small businesses can often be very difficult to work with.
"Many of the questions I get from potential clients are what are the elements that they should be paying attention to?" said Pamela Krank, president of Credit Department, Inc., presenter of the September 16 NACM teleconference, "Best Practices in Granting Credit to Small Businesses." "What are the signs that they are in trouble and what kind of information do they need to forecast slowdowns in advance?'"
The most important thing to remember when dealing with a small business, Krank noted, was that these signals are not the same as they are for their larger counterparts. "It's not the same information that they'd be getting on larger organizations," she added. "Many credit professionals take sort of a one-size-fits-all approach to managing receivables, and the reality is that it's very different. We can't look at them the way we look at larger corporations."
A number of notable differences have to be taken into account by the savvy credit manager charged with managing a small business account. The financing available to them, for instance, is not as widespread or reliable as it may be with a larger customer. "They are the financing companies," said Krank. "These businesses don't have credit lines with banks. They are the bank. That gets treated differently than selling to a company that has bank financing." The way their business is structured and controlled can also become a factor in getting payments on time. "The way they pay their bills is very different and the chain of command in terms of how decisions are made is very different," she added.
To learn more about how to effectively manage credit with small business customers, join Krank for the September 16 teleconference at 3:00pm EST. Krank will use her extensive business and consulting experience to offer a complete, 360-degree view of the credit management process as it applies to smaller firms. This 90-minute "Added Advantage" presentation will cover everything from the reasons small businesses fail to the importance of payment plans with smaller customers to simply how much credit should be extended to these customers, as well as everything in between.
To learn more, or to register, click here.
Jacob Barron, NACM staff writer
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