This one is tough. It’s the bane of every small business (and some big ones too!). If you’re struggling to get paid on time, try some of these tips:
· Use accounting software to issue your invoices so you can keep track of who owes you what.
· Look into automatic invoice reminders in your accounting software. We’ve noticed a significant decrease in days to get paid for our clients that switch on invoice reminders in Xero. It’s easy to set up and gets results. Ask us how!
· Make it easy to get paid. Offer as many payment methods as possible. There are many apps that connect into Xero that allow instant credit card payments. Check out Stripe, Square or Paypal to make it simple for your clients to pay you.
· If you invoice on the GO, think about adding a mobile payment method. If you’ve done a great job for the customer, they would be happy to pay you on the spot while it’s fresh in their mind. Don’t email (or post…) an invoice a week later only for it to get lost in the paperwork jungle.
GST, Income Tax & Super Commitments
Now that you have maximised your collections and your bank account looks healthier, what do you do with your cash? Buy a jet ski? And a trailer to tow that bad boy? Sweeeet!!!
While you’re cruising around the bay on your new toy, you get an email from your accountant. The BAS is due. $10,000 in GST and PAYG withholding for your employees. Oh, and superannuation is due as well.
You check your bank account and it’s sitting pretty with $12.84. Panic time? Put a payment arrangement in place only to default it next quarter when you can’t pay that one on time either? This strategy can snowball out of control very, very quickly. The ATO also charge a General Interest Charge on any overdue amount (currently 8.72%). Not paying the ATO is expensive!
This is one of the main reasons we see small business’ get into trouble. The cash is in your account, but is it really yours? Income tax, GST and, if you employ staff, PAYG withholding and superannuation all form part of the cost of doing business. These need to be paid on time, every quarter.
Here are some ideas to help get on top of these quarterly payments and reduce stress levels at BAS time:
· Open a savings account for your business for these expenses.
· Estimate what your liability will be at the end of each quarter and start saving. You can use a fixed dollar amount to set aside or a percentage of your collections for the week.
· At the end of the quarter you might have half, or more, saved away for when you get that quarterly BAS. Instead of looking down the barrel of a $20k lump sum payment, you may already have it set aside in your savings account. Paid. No stress. Worst case you’ve got a sizable contribution stashed away leaving the rest to be paid in more manageable instalments.
· Working out what you need to set aside can be complex depending on your business. We can certainly help you out if you‘re not sure where to start.
· If cash flow is really tight for a quarter (or year), and you simply cannot stash any cash aside, talk to your accountant. Your accountant will be able to chat with the ATO on your behalf. The worst thing you can do is do nothing. The ATO like being kept in the loop and are more likely to offer favourable repayment terms if you keep open lines of communication with them.
Hopefully these tips will help you get paid faster and manage your tax and employee obligations.
Feel free to reach out to the illumin8 team if you would like to know more!