Daily Archives: September 2, 2010

Does the Card ACT Help Small Businesses?

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According to the Federal Reserve, a little more than one third of small businesses used business credit cards in 1998, whereas that rate currently stands at about 64 percent, indicating that the use of business credit cards has significantly increased. Banks and issuers are aggressively marketing credit cards to small businesses, having mailed out 46 million professional credit card offers in the first quarter of the year. This is a 256 percent increase from the 13.2 million offers mailed out during the first quarter of last year, according to Synovate. Meanwhile, total credit card mail solicitations increased only 29 percent. Obviously there is an emphasis on the business sector, and many small-business owners are questioning why their corporate credit cards don’t get the same protections as consumer cards.

Business debt that appears on personal credit cards can negatively affect your credit score. An important factor in a FICO score is amount of debt you have as a percentage of your available credit — ideally about 30 percent. If business debt is put on your personal card, it increases this debt-to-available-credit percentage, which usually lowers your credit score.

The terms and conditions of professional credit cards are a bruising step backward for consumers finally benefiting from almost all of the CARD Act protections. Signing up for a small-business card returns consumers to the less-protected loans with penalty rates and immediate interest rate increases.

The National Small Business Association has lobbied for legislation to include small-business cards in CARD Act protections, but for now small business are stuck. It may be tempting to use personal cards for business for CARD Act protections, but that may not be wise. Interest payments on a consumer credit card are not a business expense tax write-off. Separating business expenses from personal expenses can also create an accounting nightmare.

Rather than build up debt on personal credit cards which can negatively affect your credit score in business, why not use invoice factoring by leveraging your current clients. Invoice factoring provides cash most of the time in less than 24 hours.

Invoice Factoring Can Aid Strategic Planning for Your Business

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The strategic planning process should result in identifying broad directions and approaches for your company as a whole, and it is usually intended to provide direction — with all the more tactical details to be worked out later. Most companies look at planning every quarter, so a good strategic plan will be comprehensive in scope, developed with considerable input of data and thinking. You should look at the business as it stands now – it strengths – for instance, technical excellence, strong production, excellent marketing, or customer service. This kind of objective analysis will, of course, also bring out the weaknesses of your company. Clearly identifying any weaknesses will allow you to see where you need to seek external help, or hire professionals with the skills required to resolve the issue.

In todays difficult economic times, one area where companies are often weak is knowing how to maintain enough cash flow. This is an area where your bookeeper, or financial manahgement team should think about solutions that can keep cash flow going, so your company can continue to meet bills and pay its employees on time, or purchase new equipment as needed. Invoice factoring, for example, is strategy that can help. Sometimes businesses use a “use it as you need it” invoice factoring funding option, where each invoice purchase is a separate transaction and does not form part of a portfolio lending approach. The transaction is modeled as a buy-sell transaction. The Interface Financial Group (IFG) first undertakes a due diligence that typically takes one to two business days. Once completed the client is at liberty to offer invoices to IFG for purchase.

Upon receipt of invoices, IFG checks the credit of the debtor named on the invoice and makes sure that the sale represented has been satisfactorily completed. Once this is done the debtor is advised of the purchase by IFG and the client receives their funding. At the end of the credit period the debtor pays IFG directly, thuscompleting the transaction