Monthly Archives: April 2010

New IRS Small Business Postcard Campaign for Tax Break

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The Internal Revenue Service (IRS) announced that it is mailing a postcard campaign to more than four million small businesses notifying them to see if they qualify for a tax break designed to encourage smaller businesses not mandated by 2014 to provide health care to their low- and moderate-income workers.

The tax break is being offered in two phases — the first phase being worth up to 35 percent of a qualifying businesses’ premium health-care costs for tax years 2010 through 2013. The rate increases in the year 2014 to 50 percent, with a maximum length of potential coverage for qualifying employers at six taxable years: four years under phase one and two years under phase two.

Businesses must cover at least 50 percent of the cost of health-care coverage for some of their workers, employ fewer than the equivalent of 25 full-time workers and pay average annual wages below $50,000 in order to be eligable.

Businesses are scrambling to come up with the funds to cover their employees based on the new health care reform laws, could use factoring of their invoices to come up with the money.

New IRS Small Business Postcard Campaign for Tax Break

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The Internal Revenue Service (IRS) announced that it is mailing a postcard campaign to more than four million small businesses notifying them to see if they qualify for a tax break designed to encourage smaller businesses not mandated by 2014 to provide health care to their low- and moderate-income workers.

The tax break is being offered in two phases — the first phase being worth up to 35 percent of a qualifying businesses’ premium health-care costs for tax years 2010 through 2013. The rate increases in the year 2014 to 50 percent, with a maximum length of potential coverage for qualifying employers at six taxable years: four years under phase one and two years under phase two.

Businesses must cover at least 50 percent of the cost of health-care coverage for some of their workers, employ fewer than the equivalent of 25 full-time workers and pay average annual wages below $50,000 in order to be eligable.

Businesses are scrambling to come up with the funds to cover their employees based on the new health care reform laws, could use factoring of their invoices to come up with the money.

Pitney Bowes Surveys 504 U.S. Businesses

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In a recent survey conducted by International Communications Research on behalf of Pitney Bowes, of 504 small businesses, just about half, or 52 percent, describe their business’ economic situation as worse now compared to 12 months ago. Questions focused on the financial state of their business and their outlook for 2010.

Despite their financial struggles, almost 73 percent are optimistic about the future. It’s this kind of hope that will carry them through one of the toughest economies in decades.
Apparently some of the top financial stressors for small business owners today include:

Decreased sales – 74 percent
Health care costs – 52 percent
Late payments from customers – 42 percent
Financing restrictions – 42 percent
May resort to either layoffs or changing their product mix – 31 percent
Will redue hours – 32 percent
Start a new business – 28 percent
Begin a new career – 34 percent
Retire – 32 percent

Eight out of ten small business owners say they are very worried about cash flow. Which means, this is a great oportunity for both factoring companies, but also business owners with hopes to survive.

But before resorting to bartering with customers, suppliers and employees to minimize the use of cash factoring just might be a better solution.

Survey Reveals Companies Plan to Boost Payrolls

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According to the latest quarterly survey of economists, more U.S. companies are planning to boost payrolls. This is a sign that sales are strengthening and there is a better outlook for economic growth. In fact, the businesses that are planning on increasing staff in the next six months exceeded those projecting more employees to be fired by 21 points. This figure is up from 6 points in January.

Thirty-seven percent of those polled said they project an increase in hiring within the next six months, up from 29 percent in January.

This means that as businesses continue to grow, careful attention must be paid to sustaining that growth. One way to accomplish this is via accounts receivable factoring, which allows business owners to project invoices that are due, then get funds earlier, and put the money back into their business, without waiting the typical 60 to 90 days for the funds. Invoice factoring is one way for business owners to stay on track with payroll, bills, and to purchase supplies for doing more business.

In summary, as demand rose for the third consecutive quarter, of those surveyed, more of the respondents estimated the economy will grow faster than 3 percent this year.

Source: National Association for Business Economics.

$80 million in Funding For Two SBA Lending Programs

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Yesterday, just hours after Congress passed an $18 billion bill to restore unemployment benefits for many Americans who have been unemployed over a long-term, President Barack Obama made the new law go into affect asap. This was a welcome relief to hundreds of thousands of people who lost out on the additional weeks of compensation after their state-paid benefits became exhausting. So now they now will be able to reapply for long-term unemployment benefits and receive retroactive checks under this new law. What’s more, the bill also restores full Medicare payments to doctors who were threatened by a 21 percent cut.

Additionally the $18 billion bill adds $80 million in funding to two lending programs of the U.S. Small Business Administration (SBA). This extends Recovery loan provisions through May 31, and President Obama has called for the provisions to be extended through September of 2010.

The SBA reports that lending has increased significantly since the start of the fiscal year on October 1, with 7(a) loans up 48%. The average weekly loan approvals jumped 86 percent. This figure is compared to rates before passage of the Recovery Act.

Many businesses will still not qualify for SBA loans, so invoice factoring could be their only hope to survive until the economy has fully recovered.

And although thousands of small businesses across the country have taken advantage of these Recovery loan enhancements to get the capital they need during these tough economic times factoring has also provided many business owners with just what they need, minus the debt.

Invoice factoring can be deployed using a single invoice or more than one invoice in a company’s accounts receivables roster. Funding generally takes place within 24 to 48 hours.

Government Steps up Watch on Independent Contractors

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For decades the IRS has played a game of find-the-freelancer at businesses where independent contractors remain on the payroll for months or even years. Small businesses have always relied on hiring freelancers and or independent contractors. Why? It was a good tax break — they can save as much as 30 percent by avoiding payroll taxes, plus they don’t have to pay for benefits like insurance, worker’s compensation or vacations. But now the IRS is cracking down.

The IRS as well as state agencies across the united States are making efforts to locate workers misclassified as freelancers in violation of the Tax Code. The program launched by the IRS in February 2010 will be a three-year plan to examine 6,000 companies seeking fraud. The proposed 2011 budget will include funding for 100 additional federal staffers to pursue independent-contractor violations by targeting small businesses and the self-employed. This will repeal a 32-year-old rule allowing companies legally classify long-term employees as independent contractors.

Over the last ten years the average size of small businesses has decreased, making it apparent that they’re using more freelance consultants, and during a touch exconomy, keeping independent contractors on the payroll makes sense because they’re easier to shed if the business starts to falter. The IRS is betting on the fact that small companies are less likely to follow the rules.

All of this is leading to federal agencies tryng to standardize the employee classification system. Meanwhile all of this will be costing companies more money. And ultimately this would be a good time to put accounts receivable factoring in place.

Factoring is an SME Finance Tactic

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The term “SME Finance” means the funding of small and medium sized companies. This represents a major function of the general business finance market. There are many types of capital for enterprises that are acquired, costed/priced or suppled.

Capital is supplied within the business finance market in the form of bank loans and overdrafts, equity/corporate bond issues; venture capital, leasing and hire-purchase agreements or private equity. Then there is also asset-based finance such as factoring, otherwise known as invoice discounting, or accounts receivable factoring.

Funds that are generated internally, as opposed to externally, by a business out of their own earnings or supplied informally as trade credit, are revenue generated funding.

Interest Rates Versus Invoice Factoring

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Interest rates are rising on U.S. government debt and mortgages. It is the removal of Federal Reserve purchases of mortgage-backed securities that is responsible for higher rates, but some people also believe higher mortgage rates are making the cost of money across the yield spectrum higher, thanks to inflation concerns.

First of all, the federal government’s plan of buying $1.25 trillion in mortgage-backed securities caused rates to fall to 4.71 percent back in December of 2009. Then after the Fed departed from the market, however, 30-year fixed mortgage rates jumped to 5.21 percent last week, up from 5.08 percent the the week before that, and the highest level it has been in eight months.

Currently we now are seeing inflation all around us. Gold has reached a four-month high. (The record high is $1,200 per oz.) Oil prices are up 65 percent in a year. What’s worse, one out of every ten American workers is unemployed. And foreclosures are everywhere.

One way businesses can try to survive during a high inflationary period in the economy is via the age old practice of invoice factoring. Unlike borrowing money — many smaller businesses have found that accounts receivable factoring allows them to keep their cash flow going to meet bills and payroll without haveing to pay the funds back with a high interest loan.

March Report Affects Construction Factoring Trends

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The latest construction starts from in March are showing no change with a seasonally adjusted annual rate of $435.6 billion, said McGraw-Hill Construction, a division of The McGraw-Hill Companies. There has been improved activity in two of three sectors – nonresidential building and housing. After the first three months of 2010, total construction on an unadjusted basis was reported at $91.9 billion, which was up 2 percent since last year. After a 25 percent plunge in 2009, the move towards stability is a good sign.

What’s more, nonresidential building is also seeing pickup, however on balance the emerging recovery for total construction starts in nonresidential building is still expected to be slow this year. Therefore construction factoring might find light at the end of the tunnel, to assist builders and general contractors get through tough times. The construction industry is one of several sectors that can benefit tremendously from invoice factoring.

When used, a construction company, normally required to wait for payment before starting on the next phase of a project, can begin construction on a new project thanks to invoice factoring. With construction invoice factoring, the construction company, or sub-contractor, can be paid virtually overnight for these invoices (accounts receivable) thus speeding up cash flow so that a company can start on the next phase of a construction project.

Accounts Receivable Factoring Helps Small Businesses Cover Health Care Law Costs

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This year, any business with fewer than 26 employees and with average annual wages of less than $50,000 who pays more than half of their employees’ health benefits, will be able to claim a tax credit of up to 35 percent of the cost of premiums. What’s more, the self-employed who have medical conditions will be able to buy insurance at reduced rates. By this fall insurers will no longer be able to put lifetime limits on the coverage.

By the year 2011, companies with fewer than 100 employees will be eligible for grants to set up what is known as a wellness program. Employers will be able to offer bonuses of up to 30 percent of the cost of insurance to workers, and they’ll also be required to disclose the value of health-care benefits on workers’ W-2 forms, and by the year 2018, those employees with the most expensive plans will have to pay taxes on the benefits.

In 2013 those who are wealthy will see Medicare taxes rise to 2.35 percent, which would be up from 1.45 percent, on earnings over $200,000 (individuals) and $250,000 for maried folks. Tax-exempt contributions to flexible spending accounts for medical expenses will be limited to $2,500 per year. Plus, employers’ tax deductions for the cost of a retired person’s Medicare drug benefits will be eliminated altogether.

Last, all citizens and legal residents must have insurance 2014, and individuals and small businesses with up to 100 employees will be able to shop for coverage at health exchanges. This year marks the time when insurers will be barred from rejecting anyone with a pre-existing condition. And finally, companies with 50-plus employees that don’t offer insurance could face penalties of $2,000 per uncovered worker.

As costs go up in order to meet the new insurance coverage requirements one way for small businesses to be prepared to cover these costs and avoid penalties, is to begin a program of accounts receivable factoring to cover the costs.”