Industry News
The 28% You Don’t Want – New IRS TIN Matching Regulation
January 21, 2012
If your merchant service provider (MSP) doesn’t have your proper business information on file, you could be in for a world of hurt. As per Section 6050W of the Housing Assistance Tax Act of 2008, all electronic payment transactions have been reported to the IRS since January 1st of last year. In order to ensure this reporting is accurate, certain business data must match the data on file with the IRS, such as:
- Your Taxpayer Identification Number (TIN)
- Your Legal Business Name
- Your Legal Business Address
- Your Business Organization Type (e.g. Corporation, LLC, Partnership, Sole Prop., etc.)
MSPs are required to report gross revenue, so chargebacks and refunds are included. The official ruling states:
Section 6050W(a) provides that each payment settlement entity must report the gross amount of reportable payment transactions for each participating payee. The proposed regulations defined gross amount as the total dollar amount of aggregate reportable payment transactions for each participating payee without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.
And if your tax information doesn’t match, the IRS will withhold 28% of all your payments starting on January 1st, 2013, whether it’s your fault or not. Once that happens, your MSP can’t refund you and all issues must then be handled with the IRS directly. If you haven’t received any kind of alarming notice that your information doesn’t match, this warning doesn’t apply to you. Although, it can’t hurt to call your account representative to confirm that all information is up to date and verified. Better safe than sorry.
If you didn’t know about this law, now is a good time to read up on the dense technicalities of it in this 520 page document.
Learn Merchant Cash Advance or Else…
December 15, 2011If you don’t know about Merchant Cash Advance (MCA), you’re not qualified to work in the payments industry! As indicated by the Electronic Transactions Association (ETA), Certified Payment Professionals (CPPs) should be savvy with MCA financing. According to the ETA: “The [new] CPP program sets the standard for professional performance in the payments industry and is a symbol of excellence. It signifies that an individual has demonstrated the knowledge and skills required to perform competently in today’s complex electronic payments environment.”
CPP candidates can preview exam sample questions in the official handbook, one of which asks:
An established merchant that processes $25,000 in bank card transactions per month has no marketing budget, but has been offered a sponsorship opportunity. What product/solution should the payments professional recommend?
The answer is “merchant funding” AKA MCA. Believe it folks. The MCA financing product is here to stay, has benefitted thousands of businesses, and payment professionals must be well versed in it if they are to become certified.
But there is more than a test to become a CPP.
[The ETA says] to be eligible to sit for the CPP examination, candidates must demonstrate the following qualifications:
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CPP candidates will then be required to sit for and pass a Certified Payments Professional written examination. Upon successful completion of the exam and the attainment of the CPP credential, certificants will be required to meet renewal / recertification requirements every three years, to include continuing professional education from ETA / QSP’s or the successful completion of the test.
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The next exam dates are May 1 – 31, 2012. You can learn more about registering and what it mean to be a CPP on the ETA’s official site. And don’t forget to learn about Merchant Cash Advance. 🙂
Largest Merchant Cash Advance in History Ends in Default
September 27, 2011
Six months ago, news headlines publicized just how far the Merchant Cash Advance (MCA) product had reached. Once the ‘Plan B’ option for retail businesses in need of capital, the sale of future card payments was utilized to finance a project at a Las Vegas casino. And it was no small figure. New York based Strategic Funding Source (SFS) in collaboration with Vion, shelled out $3.147 Million in return for $4.092 Million of the Las Vegas Mob exhibits’s future sales. That’s a cost factor of 1.30, a price that typifies the average MCA deal.
While SFS was given high praise from their peers, some began to speculate if transactions that large were practical. After all, the costly financing of a MCA is priced in accordance with the risk of default, not in accordance with big profits for the financier. When your portfolio is in great shape, it can be easy to forget what the pitfalls are. And since the MCA industry paraded the Las Vegas Mob exhibit as the $4 Million deal that changed everything, we’re eerily reminded of the words by Jeff Mitelman, the CEO of AdvanceIt who was quoted two years ago as asking: “How prepared are you to lose $4 million dollars?”
We won’t pretend to know what led to the downfall of the Las Vegas Mob exhibit or why it went south so quickly. SFS could potentially lose 98% of their investment, a hit that will surely change their outlook on doing large deals in the future. The VegasInc article alleges gross mismanagement and fraud, factors that are difficult to foresee in the course of underwriting.
Industry message boards have been abuzz with comments on the default, with some competitors of SFS being accused of kicking a man while he’s down. “you ought to do smart funding, not just showing off your Balls,” one broker fired off at them. SFS has a stellar reputation and is one of the most knowledgeable firms in the MCA space. We have no doubt they inspected the merits of the deal backwards, forwards, and upside down. But nothing is perfect.
The default is expected to attract attention of the news media, leaving many to wonder how this transaction will be interpreted under the public eye. We assert that it will put to rest any criticism the MCA product has ever received about high costs.
Risk vs. Reward
Back in March when the deal was written, an outsider could claim that SFS just had an easy million handed to them. This view clashes with the Risk vs. Reward philosophy that MCA providers hold dear. To the MCA providers, the question was never “how can I make an easy million?” but rather, “how prepared am I to lose $4 Million?”
Any business that can’t get a bank loan, can’t get one for a reason. There’s a measurable value of risk that’s not worth taking. MCA providers fill the gap but compensate to offset defaults. There’s a term for something like this. It’s called a Happy Medium.
Merchant Cash Advance is the happy medium financing option for small businesses. And for the immediate future it is likely to stay within the small business niche. We all know now what can happen when the concept is applied to a multi-million dollar project. The outcome was not so happy and the loss not so medium.
But it will all even out in the end…
– Merchant Processing Resource
