Three Percent Withholding Tax Guidance—Comments Needed
The Internal Revenue Service (IRS) and the U.S. Department of the Treasury recently opened a public comment period on forthcoming guidance regarding the application of the 3% withholding tax, which will require all government entities to withhold 3% of all payments for services or property made after December 31, 2010. The new tax is required by section 3402(t) of the Internal Revenue Code, which was altered by section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA).

The IRS and the Treasury have requested all affected entities to weigh in on the guidance, specifically on matters related to how to apply the withholding requirements to purchases made with credit cards or other forms of payment cards, how to apply the withholding requirements if the payee is not subject to U.S. tax and, perhaps most importantly, how to apply the withholding requirements to government contractors and subcontractors.

Comments can be sent to CCPA:LPD:PR (Notice 2008-38), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044 or can be submitted electronically to Notice.Comments@irscounsel.treas.gov with “Notice 2008-38” listed as the subject line of the email. The IRS reminded submitters that all comments will be made open to the public.

The comment period opened on March 11, 2008 and will close after 45 days on April 25, 2008.

TIPRA, along with the 3% withholding tax, was passed as part of a congressional effort to reduce the nation’s $345 billion tax gap, which represents the difference between taxes owed and taxes collected. NACM has rigorously opposed the tax and urges members to send in comments and contact their representatives in Congress, encouraging them to oppose this unfair tax.

Watch for tomorrow’s follow-up email that will include a convenient sample letter and why you need to act on this important issue!

Jacob Barron, NACM staff writer

Free WAWF Training for Contractors…and More!

DFAS Columbus Customer Service Open House
May 14, 2008  (8:00am–4:00pm)
Contractors and vendors are welcome.

Click here for conference highlights and to register.

Bankruptcy Filings Continue to Escalate
For fiscal year 2007, the total number of case filings at U.S. district courts was fairly tame. With the way the economy has faired the last couple years, it was no surprise that bankruptcy filings have continued to steadily increase. But despite escalating each quarter, bankruptcies are still at the lowest levels since 1990 due to the impact of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

Since the introduction of BAPCPA, the percentage of debtors filing bankruptcy petitions under Chapter 13 has increased 14% and accounted for nearly 39% of all new petitions last year. But because BAPCPA has placed new restraints on debtors filing for Chapter 7 protection, these accounted for a much smaller percentage in 2007 than in previous years. BAPCPA has also created new requirements for docketing, notices and hearings under Chapter 7, which has increased the amount of court effort required for processing these petitions.

During the fourth quarter of 2007, a total of 218,909 bankruptcy petitions were filed, an increase of 28% over Q4 2006. It was also an increase of 4% over Q3 2007. Of these, 7167 were business filings for Q4 and 25,925 were business filings for the year.

Matthew Carr, NACM staff writer

Credit Reports

The collection of information about a potential customer enhances the quality of the credit granting decision. That same information also has strategic implications: it can strengthen a company's understanding of its customer base and lead to expanding that base. The credit department is, in effect, an information warehouse within any company.

Gathering the most predictive information about a customer beforehand in order to assure that a company will get paid will reduce the risk of playing the guessing game. NACM Affiliates can provide you with the most up-to-the-minute information about your customers that's available in the business today—saving time, money and ensuring a completely sound and informed credit decision. NACM Affiliates are industry leaders in providing predictive data and credit reporting tools to companies that use credit information to compete in their marketplace.

NACM understands that business credit reports are the keystones that help credit professionals make sound credit decisions. NACM Affiliates can provide credit professionals with the most complete, objective and accurate reports available.

Business Credit Reports:

• Business Credit Reports
• Business Owner Reports
• Summary Reports
• Scoring Reports
• Small Business Reports
• International Credit Reports
• Country Risk Reports
• Monitoring Service
• Public Record Data

Click here to learn more about NACM’s Credit Reports.

Credit Applications and Related Legal Issues
After a number of years in the industry, it might be easy for a credit professional to overlook the credit application as something that’s more a part of the landscape than anything else. However, if an account goes bad, a haphazard credit application could make the collection process a lot more difficult. “Credit executives seem to have an attitude of ‘I’ve been around for a long time, I know everything there is to know about credit applications,’” said Wanda Borges, Esq. of Borges & Associates, LLP in a recent NACM-sponsored teleconference.

Borges noted that while this may be the case, she’s noticed seasoned credit professionals in other presentations obviously being reminded, enlightened and refreshed about some easily overlooked and commonly forgotten credit application strategies. “I hope today for all of you on the line I will either refresh you as to some things you forgot about or teach you some things you never thought about with credit applications,” she added.

Borges delivered on this wish in her teleconference, entitled “Credit Applications and Related Legal Issues,” by offering attendees a quick and effective guide to all the ways a company should protect itself from customer default and legal exposure using its credit application.

One of the first considerations to make when constructing a credit application is what information needs to be collected. “My primary rule of credit is ‘know thy customer,’” said Borges, who offered a thorough list of what details should be collected up front to put the creditor in a more advantageous position. Specifically, Borges discussed the importance of getting corporation details, ownership details and to include stipulations about references.

Ownership details, Borges noted, can be of great use should a collection effort be necessary. “You want that information so you can go find them,” she said, adding that every application should require home addresses and ownership interest information for each owner of the business entity. For references, Borges suggested that credit grantors require at least three trade references and also stipulate that they can get references from the customer’s bank. “The trade credit reference is actually going to be the best of their trade credit references,” she said. “You are not limited to the references they give you.”

Borges’ presentation also offered participants text to include in a credit application to protect a creditor from exposure to laws like the Fair Credit Reporting Act, the Equal Credit Opportunity Act and the Fair and Accurate Credit Transactions Act’s disposal rule. She also offered tips on how to clearly organize the application to make sure the customer understands it and can’t reasonably plead ignorance in a court case.

For more information on NACM’s teleconference series, click here.

Jacob Barron, NACM staff writer

The NACM Resource Library

Is it possible you haven't heard? The NACM Resource Library is now free to you, the NACM member. Operating on the frame of the most popular search engine, Google, find anything in the products NACM has stashed away for you on its virtual shelves:

• All NACM publications, including Principles of Business Credit and the Manual of Credit and Commercial Laws
• Handouts from numerous presentations and teleconferences
• Business Credit archives

It's yours, try it out!

CAQ Advises Due Diligence on SOX 404(b) Delay
The decision by the Securities and Exchange Commission (SEC) to propose the delay of some internal control reporting requirements for small businesses has sparked response from the Center for Audit Quality (CAQ). The organization has suggested that the commission use the postponement to better assess the costs and benefits of implementing new standards and guidance.

The SEC decided to postpone for fiscal year 2008 the implementation of the auditor attestation and management report sections of the internal control over financial reporting (ICFR) requirements for non-accelerated filers, as mandated by section 404 of the Sarbanes-Oxley Act (SOX). This move was in anticipation of revisions by the Public Company Accounting Oversight Board (PCAOB) to their auditing standard No. 2 and to save non-accelerated filers the burden of the full costs of implementation of these requirements.

“The CAQ shares the Commission’s view that the anticipated guidance from [PCAOB], as well as the forthcoming guidance from the Committee of Sponsoring Organizations (COSO) on management’s monitoring activities will assist auditors’ attestation of smaller companies’ internal control over financial reporting,” wrote CAQ Executive Director Cindy Fornelli. She added though, “The CAQ believes the benefits of complete 404 reporting, including the enhanced credibility and investor confidence that comes from the auditor attest function, should be available to investors in smaller public companies.”

Fornelli cited comments culled by a CAQ survey of 1,001 investors on their take of the benefits of SOX, where 76% of respondents believed auditor attestation and internal controls were positive.

“The tide is turning,” stated Glass Lewis & Co. “SOX 404 is working. Investors are basing decisions on more accurate financial reports than ever. One of the greatest competitive advantages of the U.S. capital markets—reliable and transparent financial statements—is as strong as it’s ever been.”

CAQ is also urging that the SEC broaden its efforts to evaluate the cost effectiveness of new regulations and guidance, like other PCAOB auditing standards, and should consider input not only from reporting companies, but from investors, auditor committees and others.

Matthew Carr, NACM staff writer

NACM Bookstore

Have you looked in the NACM Bookstore lately? New titles are added regularly, so chances are there’s a few new must-read books available for purchase. Don’t forget to visit the NACM Bookstore at this year’s Credit Congress in Louisville!

Can’t wait until May? Visit the Bookstore online! All titles can be purchased online and delivered right to your door.

Farm Bill Discussion Rages On; Current Bill Extended Through Mid-April
Negotiations related to the 2008 U.S. Farm Bill, which, when passed, will establish the nation’s agricultural policy for the next five years, have continued behind closed doors with Senators from both sides of the aisle wrangling over the bill’s stated revenue offsets, new programs and subsidies. Senate leaders have recently urged cooperation among colleagues to get the bill passed in the near future.

“Farmers know that it takes everyone working together to bring in the harvest. America’s farmers need their leaders in Congress to work together on the farm bill,” said Senators Max Baucus (D-MT) and Chuck Grassley (R-IA), chairman and ranking member, respectively, of the Senate Finance Committee, whose jurisdiction over matters related to the farm bill has recently been called into question. “They need us all to do our parts and get on with the work of producing our “crop”—in this case, strong legislation that helps our farm families and keeps America’s agricultural system first in the world.”

The Finance Committee’s jurisdiction intersects with a number of farm bill issues having to do with tax and trade problems, such as disaster relief funded by agricultural tariffs and the conversion of some farm payment programs to tax credit programs. The Senators argued that their proper exercise of this jurisdiction should not stand in the way of the farm bill’s completion.

“For the sake of America’s farm families, we in the Senate should acknowledge our shared responsibility to complete this bill and all pull together to get it done,” they added.

Additionally, the Senate recently extended the current farm bill, initially passed in 2002, through April 18, 2008 in an effort to allow for further debate among Congress and the White House and hopefully provide a successful farm bill within the coming weeks.

Jacob Barron, NACM staff writer

3rd Annual NACM Scholarship Foundation Golf Outing

Sunday, May 18
7:30am-2:30pm
$125 per person

Grab your clubs and join us at Louisville's famous Quail Chase golf course for this year's Scholarship Foundation Golf Outing. Rated one of the premier courses to play by Golf Digest, Quail Chase was designed by David Pfaff and features gorgeous groves of Scotch pine, maple, oak and dogwood trees.

Starting bright and early on Sunday morning, buses will transport all players to Quail Chase from the Galt House. A luncheon at Quail Chase will immediately follow your morning on the links.

Credit Congress early bird registration ends March 28. Register here.

Fed Continues to Hammer Towards Increased Liquidity
Continuing its weekly efforts to jumpstart the economy, the Federal Reserve Board announced last Tuesday that it would work jointly with the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank to expand its securities lending program. This move is part of an ongoing agreement that the central banks of the G-10 made in December to battle liquidity pressures in the funding markets and to try keeping the global economy from capsizing.

The Fed will make up to $200 billion available under a restructuring of its Term Securities Lending Facility (TSLF), but instead of the standard overnight loans, the Treasury securities will be offered on 28-day terms. In response, primary dealers will pledge other securities, such as federal agency debt, federal agency residential-mortgage-backed securities (MBS) and non-agency AAA/Aaa-rated private-label residential MBS. The securities will be made available in weekly auctions beginning March 27.

In addition, the Federal Open Market Committee (FOMC) is increasing its existing temporary swap lines with the ECB and the SNB. Until September 30, 2008, the new arrangements will provide $30 billion to the ECB and $6 billion to the SNB and represent increases of $10 billion and $2 billion respectively.

Both of these actions were merely supplemental to allow the Fed to increase the size of its successful Term Auction Facility (TAF) to $100 billion per month and to allow another $100 billion in repurchasing transactions that the Central Bank announced two weeks ago. The TAFs have pumped nearly $200 billion into the market since December in bi-monthly auctions. The most recent auction, which was the first since the Fed increased the size from $30 billion to $50 billion, was quite successful. The stop-out rate was a low 2.8% with 82 bidders and a bid-to-cover ratio of 1.85.

So far, when the TAF stop-out rate dropped below the current discount rate, it signaled a rate cut by the Fed. This again proved true on Monday when the central bank cut its primary credit rate to 3.25%. The FOMC also approved an increase in the maximum maturity of primary credit loans from 30 days to 90 days.

“Last week, I publicly asked the Federal Reserve whether it should consider additional measures to address the liquidity lock-down that has spread through our credit markets,” said Senate Committee on Banking, Housing and Urban Affairs Chairman Chris Dodd (D-CT) on the Fed announcements. “Additional steps should also be considered to address the root cause of the present market turmoil—namely, the foreclosure crisis. I am preparing legislation to do so which, like the Fed’s action today, can help restore stability and liquidity to the mortgage market and credit markets generally.”

And, as if all that wasn’t enough, the Fed authorized the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. The facility went into business March 17 and will stay in place for at least six months. The interest rate charged will be the same as the primary credit rate, or discount rate.

Matthew Carr, NACM staff writer

4th Annual NACM Scholarship Foundation Silent Auction

The gavel is set to drop for the Fourth Annual NACM Scholarship Foundation Silent Auction in Louisville!

Proceeds from the auction benefit the NACM Scholarship Fund. The fund is a means to provide educational opportunities to NACM members who would be unable to participate actively without assistance.

We encourage you to participate in raising money for the Scholarship Fund by donating or bidding on an item. Your support will help to open educational avenues…creating a better-educated, more highly regarded credit community.

Remember, all donations are tax deductible!

For more information, click here.

Paulson, President’s Work Group Stress Importance of Risk Management
in Credit Crunch
In a recent speech, Treasury Secretary Henry Paulson outlined the recommendations of the President’s Working Group on Financial Markets (PWG) and stressed the importance of effective risk management by all parties in the nation’s economy and noting that new regulations may be implemented in the coming months to help reduce the likelihood that mistakes of the past are repeated.

“As we continue to address current market stress, we must also examine the appropriate policy responses,” said Paulson. “Regulation needs to catch up with innovation and help restore investor confidence but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it.”

In his list of the PWG’s recommendations, Paulson criticized the actions of credit rating agencies and cautioned their customers to understand the limits of their products and services. “Regulators and all market participants must be more aware of and better able to respond to risks,” he said. “Credit rating agency practices must improve and the users of their services must rely less on, and appreciate more the limitations of, ratings products.”

“Risk management is everyone’s business,” Paulson added.

Paulson also argued for better management among financial institutions and encouraged market participants to identify and address any weaknesses revealed by the current turmoil. “This means enhancing internal risk measurement and reporting systems, a robust valuation of instruments and exposures and aggregation of exposures across business lines,” he said. “It also means more comprehensive disclosure of fair value estimates for complex and illiquid instruments, and of credit or liquidity enhancements provided to off-balance sheet commitments, such as conduits and SIVs (structured investment vehicles).”

Still, Paulson noted that there was no silver bullet cure for the market’s current problems, but pledged the commitment of the U.S. Treasury and several other agencies in fixing and preventing the problem in the future. “We will continue to reassess conditions, monitor progress, put forward new recommendations and take additional steps as necessary,” he said.

Jacob Barron, NACM staff writer

16073. The Changing Labor Market
Speaker: Chris Myers, Credit Alternatives, LLC
Credit Congress, Wednesday, May 21, 8:30–10:00am

The changes currently occurring in the labor market today are unprecedented, and there are many questions about what lies ahead. Whether you need to hire staff, retain you staff or change jobs, this presentation will provide you with the information you need to understand the dynamics of the labor market and put your company in the best position to succeed. Some of the items that will be discussed include the impact of the unemployment rate in hiring leverage, the "baby-boomer" impact on labor supply and the current skills and compensation of credit positions in today's market.

Early bird registration ends March 28th! Click here to register now.

Making Sense of Lien Law
The country is in the midst of hard times for contractors. Profit margins are shrinking, sales volumes are sinking, capital is disappearing while overhead costs are increasing and the availability of qualified labor is becoming a greater issue. With all these concerns weighing on the construction industry, there is a need for greater due diligence by credit grantors because the harsh reality is that the failure rate in the construction sector is immense at the moment. Most credit professionals dealing with the industry will find approximately 36% of their customers won’t be around two years from now.

“Your industry is struggling and your customers have no assets. So how do we get to ‘Yes’?” said Greg Powelson, president, Mechanic’s Lien and Bond Services (MLBS). Greg painted a stark picture for attendees at the recent NACM seminar “Making Sense of Lien Law: A Practical Introduction”. “There is no one good guy or bad guy. The problem can occur anywhere on the ladder of supply.”

This is where a credit department’s knowledge of its rights, especially in terms of mechanic's liens, can prove pivotal. Mechanic's liens are liens on real estate to secure that compensation is given to those that were instrumental in its improvement. They date back to the 1790s and Thomas Jefferson’s recognition that construction was the future of the country. As such, mechanics liens are almost exclusively American, unrecognized in most countries and for more than 200 years, they have provided one of the most unique areas of the credit industry.

Though the concept of a mechanic's lien is universal, there are a variety of statutory schemes that differ from state to state. It’s these differences that can provide the most headaches for credit managers as the definition of important events such as “first furnishing,” “last furnishing” and when preliminary notices must be sent to be valid to proceed in asserting a lien. Dates for notices range widely from 20 days after the first materials arrive on a job site, to as much as eight months after that date. It’s beguiling because in the first aforementioned period an invoice might not even be delinquent, while in the other, no credit professional would be waiting idly by for that long to receive a payment.

Powelson continued to assert that mechanic's liens are a reactive tool and in 80% of all cases, simply sending a notice to owner will result in payment. He said only 10% of scenarios will advance towards the lien stage.

“The notices are the most important part of the process,” said Powelson. “Send out a notice and the money will begin to flow in.”

He fought against the perception that mechanic's liens are personal, insulting and are bad for customer relations, even though that may be preached by sales departments. They are an enabling tool, working for all parties involved in the construction process, from the owner on down to subcontractors and material suppliers.

“You’re not liening your buddy. You’re not liening your customer. You’re liening a piece of property,” explained Powelson. “This process was designed for the downstream individuals, but it was designed to protect the owner as well.”

Matthew Carr, NACM staff writer

A Contract Administration Best Practice:
Preserving Security Rights

Correct project information is very important to ensure mechanic’s lien or bond claim accuracy, to hold your costs down and to cut the time your attorney will need to prepare a lien or bond claim. The best practice is to collect project and customer information during the qualification stage. It is always easier to collect such information while you are still friends with your customer. When a customer is more than 60 days past due, they are not likely to return phone calls or provide copies of payment bonds. You may already be in a dispute.

The Project Information Sheet, included in the newest edition of the Construction Law Survival Manual—now available—will help prompt you on the information to be collected.

Call or order online now! NACM Bookstore, 410-740-5560, www.nacm.org

Upcoming Construction Law Survival Seminar:
Thursday, March 27
Westwood Country Club - Richmond, Virginia
NACM-ECC - www.nacmeastcoast.com - 1-800-850-0803

Federal Contracting Methods Shortchanging Small Businesses
At a recent hearing held by the House Committee on Small Business, several witnesses testified that, due to the current contracting methods used by the Federal Government, small businesses are placed at a competitive disadvantage for business, arguing that agencies are placing a premium on processing speed rather than value.

Committee Chairwoman Nydia Velázquez (D-NY) noted that this robs taxpayers of potential innovation and increases the chances for unreliable work. “With less than 20% of federal contracts going to small businesses across the U.S., it is clear that this system isn’t working,” said Velázquez. “A process that excludes entrepreneurs and fails to get the best value for taxpayers is unacceptable.”

In the hearing, Velázquez noted that the total dollar amount for government contracts has increased by nearly $200 billion over the last 25 years, but agency procurement personnel has been simultaneously dropping, falling by more than half over the same period. This has led many agencies to deal with the heavier workload by shifting to automated systems, which, Velázquez argued, shuts out small businesses and compromises the quality of goods and services.

“In the long run, a shoddy job always costs more,” she added. “Federal agencies should keep that in mind when it comes to contracting, or it will be the American taxpayer who gets swindled and saddled with that.”

Other witnesses at the hearing highlighted the considerable administrative roadblocks for small businesses and their associated costs.

Jacob Barron, NACM staff writer

Industry Day Sessions at Credit Congress
Monday, May 19, 2:00–5:00pm

Industry day sessions are designed for attendees to gather and network by like industries. Please note that these are not “closed” group meetings (unless indicated) and anyone is welcome to attend any of these sessions, should the topic/speaker be of interest.

10619. International Utilities Group Meeting will be held 1:15-5:00pm. This is a closed meeting for those involved in the International Utilities Group.

Please note that Industry Day topics and speakers are subject to change based on circumstances beyond NACM’s control. You may check the NACM website for updates. Also, some Industry Day groups may opt to attend the Executive Forum rather than holding a separate group meeting.

NasTrac Quarterly Index Shows Truck Repossessions Increased Significantly in 2007, While Construction Repossessions Declined
Nassau Asset Management's Index Shows Medical Repos Also Up, While Printing and Machine Tool Repos Decreased
Repossessions and liquidations of tractor-trailer trucks increased 110% in 2007 compared with 2006, according to Nassau Asset Management's NasTrac Quarterly Index (NQI). In addition, repossessions and liquidations of construction, printing and machine tool equipment declined in a year-to-year comparison, while medical equipment repossessions rose.

"We are seeing a very significant correction in the market," said Nassau President Edward Castagna. "Even in a category such as construction equipment, where the 12-month total showed a decline, repossessions were up significantly in the second half of 2007." However, Castagna also pointed out, "Nassau is still selling equipment because there are still some very vibrant businesses that need equipment, have good credit and still look good on paper. These businesses made conservative financial decisions, maintained focus on their core business values and now flush with equity. They are taking advantage of their position in the current economy."

Trucking Repossessions and Liquidations
Nassau Asset Management cited several reasons for the 110% increase in truck repossessions and liquidations. Leading the way is the decline in homebuilding, which affects a number of peripheral business sectors, most of which utilize trucks. "From the forest to the saw mill to the construction site, along with the movement of people in and out of those homes and the delivery of appliances and furniture to the home, there are trucks involved in every step of the process," Castagna said. "The rings continue to expand out of the housing epicenter."

In addition, government regulations (including restrictions on travel time), rising fuel costs and competition placed greater financial strain on businesses that utilize trucks. Low interest rates in the past few years and significant sales of the remaining trucks with '06 engines as compared to the less proven '07 versions with tougher emission standards, led to an increase in late model trucks on the market, driving down prices in the used truck market.

Other Repo Trends
Nassau's latest NQI compares the company's internal repossession and orderly liquidation activity in 2007 with 2006. In addition to reporting on tractor-trailer trucks, the latest NQI revealed the following trends:

Construction Repos Declined—Repossessions and liquidations of construction equipment dropped by 32% in 2007, as compared to 2006.

Machine Tool Repos Also Declined—Repossessions and liquidations of machine tools declined by 47% in 2007 over 2006.

Medical Repos Increased—Repossessions and liquidations rose in 2007 for medical devices by 121%.

Printing Repos Decreased—Repossessions and liquidations of printing equipment dropped by 23% in 2007 compared to 2006.

Source: Nassau Asset Management