“I’ll pay you tomorrow”
“I can’t access my online banking at the moment”
“I never received the invoice”
“I’m waiting on a big invoice getting paid. Once, that’s settled, I’ll pay you”
Anybody who has been in business for any length of time is likely to have heard at least one of those excuses/reasons for a customer not paying. It’s estimated 84% of small businesses suffer from late payments and often it’s the larger corporate clients who are the culprits.
The problem with late payers:
It goes without saying that late payers can put extreme pressure on the cash flow of a business. Profit’s nice, but unless it’s cash in the bank it’s not going to butter any parsnips come wages day. And it’s not just the staff that will need paid: you landlord, your suppliers and even the VAT man could all be queueing up with their hand out.
If you’re looking to raise finance for your business, one of the key points any lender or financier will look at is the cash flow. Profitability is all very well but if the cash isn’t there to make your loan payments, you’re going to have problems convincing them to get on board.
If you’re planning to grow your business, this needs cash. In addition to the problems with finance raising mentioned above, if your cash is in your client’s bank account rather than yours, its going to be very difficult to finance any sustained growth.
You should always aim to have enough cash in the bank to pay for six months’ overheads while in growth mode.
We’ve seen many businesses have to postpone or even scrap growth plans as there isn’t enough cash in the business to fund them. This demonstrates the key link between profitability and cash flow.
Time and effort
Generally, it consumes time and resources that could be better spent. Frustratingly, the time and energy that goes into chasing late payments could be spent on so much more, such as services that will benefit your clients.
Take action to overcome cash flow anxiety
It’s crystal clear therefore that cash flow, and getting your invoices paid on time, is vital to the success of your business. Here’s our top five tips to help ensure all payments are made when it suits YOU, not your customer:
- Be clear about your terms from the start (and stick to them)
It’s important that your customers know what your terms are. Ensure that payment terms are clear and unambiguous on order forms, contracts, invoices etc. If the customer has signed a document which states the terms, then there can be no discrepancies or excuses later in the process.
- Make it easy for your customers to pay you
Offer as many payment methods as possible. If this article had been written even five years ago, the options would be: cash, cheque, bank transfer, credit cards etc. but now in a business to business environment, cash and cheque payments are all but obsolete.
You should, at a minimum, accept bank transfer, card payments and/or direct debit. If you’re emailing your invoices our (you definitely should be), then make sure that in the email or on the invoice, there is a link to the various payment methods.
- Switch up your invoicing and payment systems
Evaluate your current systems and make whatever adjustments are needed. Key factors in this:
- Ensure you prepare your invoice accurately and send it to the correct person
- Invoice as soon as the terms allow
- Make sure all payment methods are advised (see 2 above)
- Set up an automated reminder system to chase the email as soon as it becomes past due
Most accounting systems can be set up to do this automatically if you set the reminders properly.
- Ask for partial or total payment in advance
In the consumer world, people are becoming more and more used to paying for an item in advance but it’s taking it’s time to filter through to the B2B world. But, there’s no shame in asking for upfront payment. If you’re embarrassed to ask, then you need to reconsider your career. Remember, big businesses were once small, established businesses were once start-ups. They all appreciate the pain of early stage cash flow and might be quite happy to help you out a little. But be prepared for a little quid-pro-quo. Upfront payment might merit a discount or an improved delivery schedule.
Remember that your customer or client could well be in the same boat as you, and their cash flow, not yours, will be a priority for them. It is important therefore that you are consistent with them and insist on payment within your terms, otherwise they may well decide to delay payment. If a client has the choice of paying either one supplier or the another, then you want to make sure you’re the guy who gets paid: be persistent and keep on until you get paid – remember you’re not being unfair to expect payment for work done, or goods supplied, within the terms agreed in advance.
Bonus tip: If you have the margins, and if you can afford it, offer discounts for early settlement. But you need to make it worthwhile. 5% is about the minimum that’s likely to make any odds. Before offering a settlement discount make sure you know the impact of the discount on your profitability.
If chasing payments is a problem in your business, speak to an Acumenica adviser about how we can help introduce systems into your accounting function to minimise the impact on the business as a whole. Email firstname.lastname@example.org to call us on 03330 166559
Probably number one in the PITA list of any business owner is the drudgery of the constant admin that’s required. You’ve had a great, but busy, week and you’re looking forward to your day off, maybe a couple of glasses of wine with your partner, a night at the cinema, a day at the park with the kids. Then you remember that you’ve got the weekly accounts to do and you can forget doing anything other than this for the next few hours.
Not if you’re an Acumenica client. With the power of FreeAgent (free to all Acumenica clients) you can be out of there in jig time. Here’s our top five ways to nail the admin and get your day (or night) off back on track.
- Synced up bank transactions
Tracking your bank transactions manually or using a spreadsheet can be a major drain on your time. Fortunately, Freeagent can pull all of your bank transactions into your accounting system automatically.This is easy, time efficient and super-secure
- Smart bank reconciliation
Once your bank transactions are in the system, the potential for tedium continues. Reconciling your bank account – the process of making sure your accounting records match the money in the bank – can take forever.
But FreeAgent can “guess” your transactions. It intelligently categorises or ‘explains’ your bank transactions based on existing information in your FreeAgent account, matching up bank transactions to the appropriate bill or invoice and you have to do is approve the transactions.
- Scan (or email) bills and invoices straight into the system
Instead of manually copying each line of your receipts, bills or invoices into your accounting software, our system analyses and extracts the important information so you don’t have to.
A quick photo or scan is all it takes to get the data from the receipt in your wallet to accurate usable data on FreeAgent. You can even provide your suppliers with a dedicated email address to send invoices straight into the system with no work from you at all.
- One click VAT and payroll filing
Once all your data is in, you can file your VAT and PAYE returns with a single click of your mouse. FreeAgent is MTD ready and HMRC recognised, ensuring filings happen without a hitch.
- Automatic Invoice Reminders
If you haven’t had to chase a customer about an overdue payment, you should count yourself lucky. The Credit Protection Association reports that the average small business in the UK chases five outstanding invoices at any given time, wasting up to an hour and a half every day.
To help solve this problem, we’ve included the ability to set automatic late payment reminders in FreeAgent. You can set these reminders to be sent as soon as a payment becomes overdue. FreeAgent can then re-send the reminder a few days later if your customer still needs an extra nudge. On the bright side, you can set FreeAgent to send automatic thank you emails when you get paid.
Use FreeAgent to stay compliant and manage the books, and Acumenica to provide the insight and expertise.
And that’s not the half of it: on average, Acumenica clients spend just one hour a month on their accounts but they still have all the vital financial information at their fingertips resulting in more profits, lower tax bills, and less headaches.
If you want to reduce your paperwork even further, talk to us about The Big Blue Envelope. Throw all your invoices and statements in an envelope every week or month, and we do the rest.
One of the most stressful things that can happen to a business owner is an HMRC compliance check. HMRC is coming under increased pressure by the Treasury to ensure that all tax is paid correctly and fairly. Our view is that, in the wake of the economic problems post-pandemic, this pressure will only increase. This will lead to increased compliance checks. In this article, we explain what can trigger an investigation, and what can be done by business owners to reduce the chances of selection.
HMRC employs a risk-based approach to compliance check selection. If you have been selected for a compliance check, the chances are that your business has been identified as a higher level of risk based on the following factors:
While it’s not unusual for business profits to fluctuate from year to year, it is unusual for large swings. Therefore, if your declared profits suddenly fall without a good explanation, HMRC might look at your business a little more closely.
Margins and expenses are inconsistent with industry standards
Similarly, it’s fair to expect that most businesses operating within a specific sector will have similar profit margins and expenses. If your returns show that your business is less profitable due to lower margins or higher expenses than your peer-businesses, this could be a trigger.
You operate in a high-risk sector
Some types of business are notorious for underdeclaring income and operating off-the-books. Historically, takeaways, taxi-drivers, and tradesmen have been known to be targeted by HMRC for this type of activity but any business who receives payment in cash, either predominately or entirely, is potentially on the radar.
Consistently late filing and payment
Submitting a late tax return will lead to a late payment fine. If it’s a one-off, then that may be all you hear from HMRC. However, if you consistently file your tax returns late or make payments after the deadline, that could trigger a compliance check. This covers VAT, PAYE, Self-assessment and Companies House. HMRC take the view that if you don’t attach enough importance to filing on time, you may not attach importance to filing accurately either.
You’ve been reported
As unsavoury as it sounds, HMRC have a mechanism for anonymous tip-offs and the public are encouraged to make use of it. If a third party contacts HMRC and suggests that you’re not paying the taxes you should be, it may launch a compliance check to dig a little deeper. Old business partners and ex-spouses are common sources of a tip-off.
How to avoid an investigation
The truth is there are no guarantees that you will not be the subject of an HMRC Compliance Check, and some experts reckon that every business will have at least one check in their business lifetime. So, while you can’t be sure of never being checked, there are simple steps you can take to reduce the odds.
Be a good little soldier
The best one is to behave. Keeping off the radar by always meeting your compliance requirements is a good start: always file your accounts and returns on time and always pay your VAT and tax bills on time. If you’re consistently finding it difficult to meets your compliance obligations, you should speak to an accountant to see what can be done to improve your performance in this area.
Keep an eye on your margins and expenses
This is good business practice anyway. If your margins are so far out of the norm that HMRC take a look, then there’s a good chance that there’s something wrong in your business. A simple and up-to-date accounting system will allow you to keep an eye on your margins and make adjustments before things go too far wrong.
Of course, there is always the chance that something has happened in the business which has knocked the margins out of kilter. If you are able to explain these, then you should ensure that the while space on the tax return is used to do so.
If the thought of a tax check give you the chills, talk an expert now on how to bomb-proof your business. In addition to reducing the risk of being selected for a compliance check in the first place, we can also help implement measures which would, if you are selected for a check, make things go much easier. Visit the Contact Us page to, erm, contact us.
Do you always leave filing your tax return until the last minute? You really shouldn’t. Here’s why:
- Receive your tax refund earlier
Most businesses had a tough 2020. You may have noticed things weren’t really normal for a while there. If your business income was down, chances are so was your personal income. This could mean that your in-year payments were too high and you might be entitled to a repayment. Filing early will ensure this lands in your pocket as quickly as possible.
- Reduce your July 2021 payment on account
Similarly, being an early filer will mean that you will have certainty over how much you need to pay at the end of July. If your return hasn’t been filed, HMRC estimates this payment based on last years’ figures, which could be much higher, putting an unnecessary dent in your cashflow.
- Budget for your tax bill
Regardless of when you file, your tax bill is due on 31st January of the following year. So, if you submit your return in May, you’ll have eight months to provide for the payment due. If you file at the end of January you’ll have days. If your liability is a few grand, you’ll want as long as possible to prepare for it.
- Have records available for mortgage references
Most brokers and lenders now require, in addition to an accountant’s certificate, proof of your income from HMRC. You are invariably asked to provide your most recent tax statements. If these are out of date, then this could lead to a mad scramble to get these done. Moving house is stressful enough without needlessly adding to it.
- Identify opportunities to save tax earlier
The quicker you prepare your tax return, the quicker we can identify tax saving opportunities for the future. If you can implement a tax saving measure in April, rather than December, then this can only be a good thing, right?
If you want to file earlier, and your current accountant is the roadblock to this, the next step is to book a call with an Acumenica accountant so we can find out a little more about your business and how we can help you. Definitely no hard sell and no obligation.
Visit our Contact Page to get in touch.
If your business has been adversely affected by the latest lockdown restrictions, you may be able to apply for help from the Strategic Framework Business Fund.
- Up to £3,000 per month if your business is forced to close
- Up to £2,100 per month if your business has been legally required to modify its operations
- Administered by local authorities
- Based on rateable value – only businesses with premises are eligible
- Business must have active since March 2020
Businesses which have had to close
If you had to close your business due to lockdown rules, then you can apply to your local authority for support via the Business Temporary Closure Fund. Similar to the support provided earlier in the year, this will be based on the rateable value of your premises:
|Rateable value up to £51,000
|Rateable value £51,001 or more
Businesses which have had to modify operations
If there has been a legal requirement placed upon your business, ie, to reduce hours, then an application can be made to the Business Restrictions Fund for support. Again, this us based on the RV of your premises:
|Rateable value up to £51,000
|Rateable value £51,001 or more
- The business must have a dedicated business bank account (you will be required to provide the account details as part of the application process and this is the account your grant will be paid into if successful).
- The business was trading on 02 November 2020 (including businesses who were required to close due to coronavirus (COVID-19) restrictions).
- Your business must have been actively operating before the 17th March 2020, where necessary local authorities may request additional evidence to determine eligibility
- Business premises are registered for Non-Domestic rates (if you pay rates through your landlord rather than directly to a Council, you are still eligible to apply but must provide evidence of this arrangement through a copy of your lease agreement).
- The business has not breached wider coronavirus (COVID-19) regulations/requirements prior to the Strategic Framework restrictions being implemented on 02 November 2020.
- The business is not connected to a tax haven, as set out in the Coronavirus (Scotland) (No. 2) Act 2020.
- Businesses operating from a single location, must be based within the local authority area that they submit an application to.
- Businesses with multiple premises must be headquartered within the local authority that they submit an application to.
- If your business is headquartered outwith Scotland you can select which Local Authority you can submit your application to. Please note you can only apply to one Local Authority.
If your business operates multiple premises you can apply for grants for each premise. All premises can be included in one application to the Local Authority area in which your business is headquartered.
Please note you can only apply to one Local Authority for all your businesses premises.
- Business Temporary Closure Fund – An upper limit of £15,000 in total will apply to any eligible business operating multiple premises.
- Business Restrictions Fund – An upper limit of £10,500 in total will apply to any eligible business operating multiple premises.
In all cases, you need to ensure that your business qualifies for relief. This will depend on the protection level your business is operating in. You can check here.
If you’ve any questions at all, or would like us to check out your calculations, please contact us straight away. We’re here to help you, even if you aren’t yet an Acumenica client.