Here are some useful tips to cut your company’s losses in the recession.

Although the downturn has changed normal payment patterns, when you see any of these signs, management would be well advised to act before it’s too late.

1. Loss of contact. Defined as two broken promises to pay. Accept one promise. The second time, ask in a direct, friendly way if this isn’t the second promise, why it’s late and exactly when you’ll be paid. Other loss of contact: NSF checks, never in, no answer, on hold too long.

2. Abrupt personnel changes. Your contact leaves. Nonpayment is blamed on personnel shifts. Always assume the worst. Say: “Let me talk to your superior or whoever pays the bills.” (It may be the boss.) Pros call daily to get the right person. If they promise to call back, set a firm schedule. No call is loss of contact.

3. Any banking change. If nonpayment is blamed on changing banks, ask for the name of the bank and bank officer. (Refusal is a red flag.) Call the bank: “I’m confirming that _____ opened an account.” Pros also ask if it’s “a satisfactory situation” (bank may have denied financing), and what banking business is being done.

4. Unusual disputes (stalls). At 30 days: “The check is in the mail.” At 60 days: “Wasn’t that the shipment that. . .?” Probe and question. Genuine complaints are usually prompt and detailed (invoice numbers, etc.). The vaguer a complaint, the more suspicious it is. Ask: “Why haven’t I had something on this in writing?”

5. Intimidation. Debtors sensing a non-pro calling may be rude to deter future calls. Ignore it. Stick to the business at hand: nonpayment. Keep probing. “Will you pay? when? etc.” Try humor (“Get up on the wrong side of the bed?”). If it fails, the intimidation is deliberate. Don’t be afraid to report intimidation to management. These cases end up with collectors (bosses hate intimidation, too).

6. Change in payment pattern, especially one following an earlier change when the recession began. For example, a regular 45-day payer starts paying in 70 days and only after two phone calls. Act now or the next check will come in 120 days. Say: “You’ve been great about paying, always on time. Now, 45-day payments come in 70 days. Where are we going?” If there’s no good reason (e.g., a temporary problem), it’s a red flag.

What to do when it’s already too late

Too often, management makes unrealistic demands on debtors who can’t possibly pay (“We want it all now“). The debtor then avoids talking to you at all. Why lose money, and possibly a good customer, due to a customer’s temporary, unexpected reversal?

The solution: Focus on your cash flow, not the customer’s debt, regardless of whether it is $1,000 or $10,000, by setting up a realistic payment schedule as follows:

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Is your company or client properly covered?

Most owners think they are “insured.” But it is coverage a firm does not have that can put it out of business. Check this list from Gaebler Ventures, a venture capital firm:

The Supreme Court has backed state sales tax on Internet sales. New Mexico had imposed its gross receipts tax on Dell Computer’s Internet sales in the state, even though Dell had no physical presence in the state other than a third-party service tech under contract. State courts found for the state, and the Supreme Court refused to hear the case. Sales taxes on Web sales face more challenges, but the tax should not be ignored. [Dell Marketing LP v. Taxation and Revenue Dept. of the State of New Mexico, No. 26,843, N.M. Ct. App. 2008]

Source: AIPB.org

The next time an employee or owner asks you about Social Security benefits, you can provdie all the answers, with total confidence.  Here they are:

For retirees born in 1941, full retirement age is 65 and 8 months; in 1942, 65 and 10 months, gradually increasing to 67 for those born in 1960 and later.

Age 50. Benefits start for a disabled surviving spouse.

Age 60. Benefits start for a nondisabled surviving spouse.

Age 62. Benefits start based on the employee’s, spouse’s or former spouse’s earnings (if the former spouse is still alive).

Full Retirement age reached in 2009. Employees born in 1937 or earlier receive full benefits at age 65. There is no limit on earnings and no reduction in benefits for those at FR age.

Full Retirement age reached before 2009. Employees born in 1940 or earlier receive full benefits at age 65. There is no limit on earnings and no reduction in benefits.

Full Retirement age reached after 2009. Recipients can earn $14,160 in 2009 before losing $1 in benefits for each $2 earned.

Important: Just earning 40 credits (formerly “quarters of coverage”) does not make individuals eligible for the maximum Social Security benefit. It simply makes them eligible for retirement benefits at a certain age. Credits are unrelated to the amount of the benefits.

Social Security benefits are based on average earnings over 35 years of work-not just on the last 5 years, as many people think. An adjustment is made to account for changes in average wages since the year the earnings were received. SSA then calculates average monthly adjusted earnings over the 35 years when the worker earned the most money.

Employees can obtain their Social Security earnings by calling 800-772-1213, by visiting an SSA office, or by visiting www.socialsecurity.gov/mystatement.

Reminder: Withhold Social Security taxes on all wages regardless of age or Social Security benefits status.

Employees can now deduct $20/mo. pretax for bike commuting (your payroll taxes).

The benefit:

• Must be actively elected by the employee.
• Cannot be received in the same month as a transit, vanpool or parking benefits -e.g., Sally cannot bike one day and drive or take the bus another.
• Is only for those who “regularly use a bicycle for a substantial portion of travel between the …. residence and place of employment.”
• Cannot be claimed if biking is “infrequent or constitutes and insubstantial portion of the employee’s commute” for the month -e.g., January in Pittsburgh.

Anyone can cash checks made out to cash, and IRS agents look for them in audits.  To protect your firm:

1. Organize all cash register slips, gas slips and invoices that the check will be payment for.
2. Run an adding machine tape for the total amount.
3. Staple the tape, slips and invoices together.
4. Enter check no., amount and date on a sheet of paper.
5. File in a folder marked with the check number.

Now you have the documentation if you are audited.

When issuing a duplicate W-2: Type “REISSUED STATEMENT” in the upper right-hand corner on all W-2 copies. It is acceptable to use a copy of the employer’s copy.

• Sending W-2s to former employees. Photocopy the envelope in a way that shows the recipient’s address, and write on the duplicate copy the date you mailed it.

• Handling returned W-2s. If you mail W-2s, keep a returned one in the envelope. If you hear from the employee, put this envelope in another envelope and mail it to the corrected address.

If you don’t hear from the employee, keep it for at least 4 years as proof that it was mailed by the deadline.

Alternative: IRS final regs offer an easy new way to retain returned W-2s. You can meet regulatory requirements by scanning W-2 copies B and C, then shredding the originals.

We advise: Also scan the envelope in which the W-2 was mailed (because the postmark and address are proof that you mailed it and when).

Scanning has a privacy benefit: W-2s with names, addresses and SSNs are not accessible simply by opening a drawer. Be sure your electronic storage is secure. [Rev. Proc. 97-22, 1997-3 I.R.B. 9, Guidance on Electronic Records]

AIPG.ORG

Taxing a cash (or cash equivalent) bonus

You are required to treat any cash bonus as wages and to apply FITW, FICA, FUTA, and state and local payroll taxes. If you give the bonus separately from regular wages, or with regular wages but identified as separate, the supplemental withholding rate-25% for 2008-can be used. [26 CFR 31.3402(g)-1]

A discretionary bonus is a lump sum that the employer decides when to give and how much to give. It cannot be required by a contract, agreement or promise nor be part of a pattern that leads employees to expect it. To qualify as discretionary, the bonus must be a complete surprise to the employee. An exception is holiday bonuses that, even if given each year (leading employees to expect them), can be treated as discretionary. A discretionary bonus for hourly employees does not affect their overtime pay rate. [29 CFR 778.211]

A nondiscretionary bonus is one required under a contract, agreement or promise, express or implied-e.g., for higher or faster production, as an inducement to take a job or stay with the company-or a bonus that employees have come to expect (except for holiday bonuses). A nondiscretionary bonus given to hourly employees must be added to gross pay for the week in which it is earned and included when computing any overtime for the week. [29 CFR 7788.209]

Example: Pat earns $11/hr. One week she works 43 hours and earns a $30 prorated production bonus.

Pat’s normal pay: $473 for the week ($11 x 43 hrs) + $30 bonus = $503 straight-time pay.

Pat’s overtime pay: $503 earned for the week (including the nondiscretionary bonus)/43 hours worked = $11.70 regular rate of pay x 50% premium rate = $5.85 x 3 hours’ overtime = $17.55 premium pay.

Pat’s gross pay: $503 straight-time pay + $17.55 premium pay = $520.55 gross pay for the week.

Source: AIPB.ORG

Nontaxable gifts. Fruit baskets, hams, turkeys, wine, flowers and occasional entertainment tickets, such as to a show or sports event, generally are nontaxable as de minimis fringe benefits.

Taxable gifts. Gift certificates (“cash in kind”) are wages subject to FIT, FITW, FICA, and FUTA—even for a de minimis item. For example, a gift certificate for a turkey is taxable even though the gift of a turkey is not. Cash gifts of any amount are wages subject to all taxes and withholding. [26 CFR 1.132-6(e); TAM 200437030]

Parties and picnics. The cost of occasional parties is nontaxable to employees and their families as a de minimis fringe—if they are infrequent and for the purpose of promoting employee health, goodwill, contentment, or efficiency. Examples: occasional holiday celebrations, cocktail parties and company picnics. Such parties are fully deductible to the business (they are not subject to the 50% limit on business meals). [IRC §132]

A credit application is a great way to avoid granting credit to bad risks–but only if it asks the right questions and all the blanks are filled in. The application is given during “the honeymoon period,” the most friendly period, so this is the best time to ask important, revealing questions. Credit is based on trust, but trust is more reliable when you get the right answers on a well-designed credit application.

Make sure your credit application asks:

• The legal form of the prospect’s business. Are you dealing with a corporation, partnership or individual? If it is a corporation, it’s crucial to know the correct legal name-down to the last comma and period. (See below for details.) Check with the state to determine the correct corporate name and to see if the corporation is “in good standing”-that its corporate charter is still on the state’s active files.

If it is a partnership or sole proprietorship, get each owner’s home address and SSN (if the customer goes out of business, you need to find the owners quickly to ask for payment), whether each owner previously owned another firm and, if so, what happened to it. You may want to ask if the firm is adequately capitalized, rather than depending only on credit reports.

• Who at the customer’s firm has authority to sign contracts, place orders and sign checks? This may or may not be the same person. Knowing who can sign checks allows you to telephone the right person for payment right away.

• Two creditors currently extending the greatest credit and permission to contact them to confirm that payments are being made according to terms. Much more effective than just asking for “credit references” (which allows the prospect to be very selective). Make sure that your application includes a statement giving you the right to contact the references.

• The date on which the prospect’s business began. Unfortunately, few applications ask this. Because a large percentage of businesses fail in the first few years, the firm’s age is important. How quickly would you extend $100,000 in credit to a firm that opened last month? Professor Bruce Kirchoff, New Jersey Institute of Technology, reports that about 18% of all new firms fail during the first 8 years, 26% survive only because of a change in ownership and 28% voluntarily go out of business without losses to creditors.

• “Was this firm previously part of another company?” This wording is important. A “yes” should prompt an investigation into why the separation occurred. Sometimes, profitable companies spin off an unprofitable division in a way that prohibits the parent from being called for payment.

• “Is a written purchase order required?” If it is, your firm can comply from the outset rather than arguing with the customer later.

• A statement making the person signing the application liable for lying. For example: “I warrant that the foregoing information is true and correct, and realize it will be relied upon in the granting of future credit.” If the application is signed personally and turns out to be materially (seriously and substantially) false, you may be able to pursue the signer personally even if the credit your firm granted was to a corporation.

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