April 7, 2011



News Briefs

  1. 1099 Repeal Measure Passes Senate, Heads to President for Signature
  2. Sen. Whitehouse Small Business Bankruptcy Bill Being Tweaked for Another Run
  3. Amendment to Small Business Bill Would Repeal 3% Withholding Requirement
  4. China, Brazil, U.S. Fighting Inflation Threats in Very Different Ways
  5. NACM Survey Signals Management Reluctance to Add New Credit Staff
  6. Swipe Fee Fight Heating Up

 

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1099 Repeal Measure Passes Senate, Heads to President for Signature

The Senate on Tuesday passed H.R. 4, a bill that fully repeals the 1099 reporting requirement enacted as part of last year's health care reform bill. The Senate vote was the final hurdle for the repeal effort, and now that that hurdle has been cleared, the bill will head to President Barack Obama for his signature.

Had the repeal not been enacted, the 1099 requirement would've required all businesses to file an Internal Revenue Service (IRS) Form 1099 for every vendor from which they annually buy $600 worth of goods or services, beginning next year.

The bill's passage caps weeks of debate over how exactly Congress would pay for the repeal. In voting for H.R. 4, the Senate agreed to fund the measure as the House of Representatives originally sought to: by requiring taxpayers who receive federal health insurance subsidies to repay them if they end up earning more than 400% over the poverty line. While some Senate Democrats had reservations about this pay-for method, which takes a swipe at another part of the health care reform bill, the final 1099 repeal vote was firmly bipartisan, with only 12 Senators voting against.

"Today, the wrench has finally been pulled from the gears of progress," said Sen. Mike Johanns (R-NE), who was heavily involved in the 1099 repeal effort, having introduced bills to that effect seven times in the last eight months. "I appreciate that my colleagues have seen the wisdom of avoiding further delays and getting this costly, looming paperwork burden off the backs of our job creators. We now need only a simple signature from the president and this bill will become law, saving jobs and much needed capital for our small businesses."

In a statement, the White House offered muted support for the bill. "We are pleased Congress has acted to correct a flaw that placed an unnecessary bookkeeping burden on small businesses," said Press Secretary Jay Carney. "Small businesses are the engine of our economy and eliminating the 1099 reporting requirement is the right thing to do."

The president's signature is pending. Stay tuned to NACM's eNews and Credit Real-Time Blog for future updates.

Jacob Barron, NACM staff writer

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Sen. Whitehouse Small Business Bankruptcy Bill Being Tweaked for Another Run

A spokesman in the office of Sen. Sheldon Whitehouse (D-RI) confirmed this week that its legislative staff is hard at work on a revamped version of a bankruptcy bill that stalled last year in a sharply divided and eventual lame-duck Congress.

Whitehouse Press Secretary Seth Larson told NACM that Whitehouse will take another pass in 2011 at a bankruptcy bill designed to create a new bankruptcy procedure for small businesses to use when typical Chapter 11 proceedings would prove too costly. The proposal, S. 3675 or the Small Business Jobs Preservation Act, aimed to help small businesses make good faith and more effective attempts at reorganizing instead of liquidating.

Larson could not confirm what types of changes would be included in the latest version of the proposed bill or the timetable for its introduction. Larson declined to comment on whether Whitehouse would be willing to consider any amendments, including one with potential that is dear to the heart of fellow Judiciary Committee member Sen. John Cornyn (R-TX): restrictions on bankruptcy venue change. Cornyn, believing venue change loopholes are abused to the detriment of small stakeholders such as regional business creditors and the essence of legal fairness itself, has tried unsuccessfully to push stand-alone legislation on the matter twice in the last decade. It has been heavily rumored that he will make another push for it in 2011, likely through an amendment to some other piece of legislation. Cornyn staffers told NACM there are no plans for another piece of stand-alone legislation.

Whitehouse's S. 3675 failed to advance from the Judiciary Committee late last year as much of the Senate was mired in pre-election partisan battling in the run-up to November's General Election and what appeared on the surface to be an unmotivated malaise in the subsequent lame-duck weeks. The proposal was on the agenda as late as the Judiciary's Nov. 18 meeting, but the committee set the bill aside, choosing instead to work on proposals with broader bipartisan support.

NACM has worked closely with Whitehouse's office on S. 3675 and will continue to do so on future efforts aimed at the same goals. To learn about NACM's various legislative efforts, visit the advocacy page by clicking here. Additionally, NACM's 2011 Legislative Preview is available now in the April edition of Business Credit and look for the feature on venue change in the upcoming May issue.

Brian Shappell, NACM staff writer

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Amendment to Small Business Bill Would Repeal 3% Withholding Requirement

Two 3% withholding relief bills have been combined into one amendment to a small business bill currently being debated in the Senate.

Sens. David Vitter (R-LA) and Scott Brown (R-MA) combined their dueling repeals of the 3% withholding tax, set to go into effect on most government contracts in 2012, to create Amendment 212 to S. 493, the Small Business Innovation Research (SBIR) and Small Business Technical Transfer (STTR) Reauthorization Act. The amendment would use Brown's template for funding the 3% repeal by rescinding $39 billion in funds appropriated but unspent by government agencies excluding the Departments of Defense and Veterans Affairs.

The 3% withholding requirement was originally enacted in Section 511 of the Tax Increase Prevention and Reconciliation Act (TIPRA), which was signed into law in 2006. It was originally scheduled to go into effect on Jan. 1, 2011, but was delayed to Jan. 1, 2012 in 2009 by the American Recovery and Reinvestment Act (ARRA). Should the requirement go into effect, most transactions for goods and services with a government entity would be subject to a 3% withholding tax, kept by the governmental entity in question.

NACM has fought the enactment of this provision, which will fall disproportionately on smaller businesses, since its introduction. As a member of the Government Withholding Relief Commission (GWRC), NACM has lobbied for a full repeal and hopes Congress acts quickly to remove this unfair and potentially harmful provision from the tax code.

"The withholding is a flat percentage of revenues from government payments, bears no relationship to companies' taxable incomes and will restrict cash flow needed for day-to-day operations and investments," said the GWRC in a recent letter supporting Amendment 212. "In addition, the administrative and capital investment costs that compliance with 3% withholding will impose on businesses and governments will be substantial, and the mandate will be exceedingly complicated to implement."

Stay tuned to NACM's eNews and Credit Real-Time Blog for any further updates.

Jacob Barron, NACM staff writer

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Plus, don't miss networking with global practitioners from various industries at FCIB's International Luncheon on Monday, May 23.

China, Brazil, U.S. Fighting Inflation Threats in Very Different Ways

China's central bank, concerned with its economy getting significantly more overheated than it already is, tried again to pump the brakes this week by raising interest rates. It's a decidedly different track than is being taken by fellow hot economy Brazil and the still struggling-to-recover United States, but that doesn't mean any are employing the wrong strategy, says one analyst.

The People's Bank of China announced it would raise its rates by 25 basis points, the second time this year it has opted to make such a move. China has experienced off-the-charts economic growth in recent years, with some critics believing a big part is due to the trade advantage it receives from alleged currency value manipulation. The nation is also contending with an overheated housing bubble even stronger than the one that propped up and eventually devastated the U.S. economy.

"I was not surprised by the Chinese action," said Economist Byron Shoulton, of FCIA Management Co., a speaker/panelist at the upcoming FCIB I.C.E. Conference in Chicago. "I believe it is timely and reflects the seriousness that Chinese policymakers attach to the continued threat of inflation. It's a sign that the fight continues and that the Chinese are not relaxed about it."

Brazil, acknowledging inflation is a real issue within the growing economy, in essence said it will a take a sort of wait-until-next-year approach to addressing the problem. Officials in the administration of new President Dilma Rousseff, who has a history of being leftist and pro-labor, have expressed concern and/or disinterest in making more significant efforts toward slowing down booming economic growth there. The central bank predicted it will usher in larger monetary policy tightening efforts sometime in 2012 to curb inflation. Although, if it is playing catch up, it may have to tighten significantly more than it would if addressing the issue this year.

"In fairness to the Brazilians, they do at least recognize the problem and have taken action (albeit with limited results) by raising interest rates twice since late December," said Shoulton. "The expectation is that another interest rate spike is on the way shortly. Many agree this may not be enough. The difference is that unlike China, Brazil has an overvalued currency and already has much higher interest rates than most countries. Policymakers in Brazil are challenged on a variety of fronts: (a) to rein in very strong capital inflows; (b) dampen robust consumer credit growth; (c) keep inflation under control; and (d) bringing down the value of the real in response to intense pressure from Brazilian manufacturers struggling to compete with a large influx of cheap imports (Chinese)."

Meanwhile, the U.S. Federal Reserve appears reluctant to even acknowledge that inflation is a present danger, noting that spending on areas such as food and fuel, both of which are surging, represents a small portion of household expenditures. However, the Fed is seemingly starting to soften its language that inflation is not growing as a threat despite the fact that the target for the federal funds rate has remained near 0% for a lengthy period. The Fed has maintained that rates will stay low for "an extended period" to foster growth in the still tepid recovery.

So, which nation is taking the correct approach? Said Economist Xu Cheng, of Moody's Analytics, there's no evidence as yet that any are taking the wrong approach.

"I think, with the U.S. and Chinese at least, the approaches are both appropriate; one is in a mild recovery while the other is trying to prevent overheating in what is essentially still a strong expansion," Cheng told NACM. "Clamping down on inflation is the stated goal for this year in China, and I think they probably will do more. In the U.S. the situation is different in that the U.S. doesn't have as much core inflation."

NACM's 2011 Credit Congress in Nashville this May also will address China and Brazil during a host of sessions including "Doing Business in China" and "Doing Business in Brazil." For more information or to register, click here.

Brian Shappell, NACM staff writer

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NACM Survey Signals Management Reluctance to Add New Credit Staff

While the most recent employment reports showed a number of notable job gains, a majority of credit departments noted their companies are not hiring, or planning to hire, any new credit staff in the near future.

In NACM's most recent monthly survey, when asked "Is your company hiring, or planning on hiring, new credit staff?," 76% of respondents answered "no." Only 19% of respondents answered "yes" and the remaining 5% of respondents weren't sure. Many participants who noted that their companies would be hiring credit staff in the near future commented that this was often to replace other staff members who were leaving or retiring.

Others noted that their company's decision to hold off on hiring had less to do with the economy and more to do with the fact that they simply weren't in need of any more staff. One respondent noted that their company would not be hiring new credit department staff "at least not until we see a significant increase in sales where we can then justify adding staff. We have made some technological advancements that have enabled us to maintain our portfolio with a reduced staff." This was true for other participants too, who cited increased efficiency as part of technological solutions as the reason for their company's reluctance to add new employees. "We have found updated software, computer systems and automated procedures that allow us to operate with the staff we have without expanding," said one respondent.

Industry concerns have also kept some companies from adding new hires, especially those in the construction or building sectors. "The housing market/construction industry is still in no shape to consider hiring new people in any department. In fact, some builders and building material suppliers are still laying off and closing doors. I know of three people so far this year who have lost their jobs in our industry," said one respondent. "Our company has been laying off people for the past three to four months. We have lost people [with] up to 12-15 years of service," said another. "The building industry, as everyone knows, is on its ear and I see no turn around for another two years or longer. Wages have been frozen here for five years as well, and some people have suffered cut hours and reduced pay."

Some respondents noted that, despite sales increases, their company was relying on less permanent staffing solutions, like shared service environments or temporary hires, to maintain performance without having to add to department headcount. "Regardless of the increase in transactional and dollar volume, ‘do more with less' is the continued policy," said one participant.

This month's NACM monthly survey is now live and asks about the 3% withholding requirement set to go into effect on most government contracts in 2012. Click here to participate today.

Jacob Barron, NACM staff writer

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Swipe Fee Fight Heating Up

The banking lobby continues to fight a Federal Reserve plan to cap interchange fees, recruiting an increasing number of federal lawmakers to block the effort and earning at least a split decision in U.S. District Court.

Ruling on a motion brought on behalf of the U.S. government and the Fed to dismiss a case where a South Dakota company is suing over proposed fee caps, a district court judge in that state denied the request. Judge Lawrence Piersol, however, also denied a motion from the plaintiff (TCF Financial Corp.) to impose a preliminary injunction on enactment/enforcement of the interchange fee caps. TCF officials argued that mandates cutting interchange or "swipe" fees by more than two-thirds from the average existing fees would cause a significant and unfair financial hardship on its business and other businesses in the industry.

Meanwhile, following some aggressive lobbying from financial interests, lawmakers on both sides of Capitol Hill and from both parties appear close to starting a hard push for legislation that would undo the provisions, passed in a Dodd-Frank Act amendment spearheaded by Sen. Richard Durbin (D-IL). Among the most likely legislative efforts to gain steam are proposals sponsored by Sen. Jon Tester (D-MT) and Rep. Shelley Moore Capito (R-WV). Some proposals are calling for a delay of at least two years and a full, likely costly, economic impact study. The rumblings led Fed Chairman Ben Bernanke last month to admit the original deadline to have the final swipe fee proposal written, late April, would come and go without its completion. Curiously, the delay movement even has drawn some support from a handful of senators who voted in favor of the provisions just last year.

As part of the Dodd-Frank Act, the sweeping financial reform package inked into law last year, the Fed unveiled a proposal that would set a maximum cap on swipe fees at $0.12 per transaction. The Fed estimated that merchants were charged, on average, $0.44 per transaction, and that revenue from said fees comprised somewhere between $12 and $16 billion for the financial industry in 2009 alone. The Fed noted the proposed regulations would establish standards that are more "reasonable and proportional to the cost incurred by the issuer for the transaction."

The proposal, if implemented without changes, would be a significant victory for small businesses that saw the fees as unfair and a serious financial burden. Subsequently, the move, at best, would leave uncertainty at corporations such as Visa, MasterCard and backing financial institutions and, at worst, would have a severely negative impact on their revenue streams. For what it's worth, the thinly-veiled message from the financial titans appears to be "We'll get that money in one way or another." Still, they're putting lobbying efforts and considerable money behind the effort. Stay tuned...

Brian Shappell, NACM staff writer

To view past eNews issues or to visit the NACM Archives, click here.

 

 

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