Archive for 'money'
Businesses can be heavily impacted by customers who cannot, or simply will not pay when payment is due. A single unpaid invoice can cause issues, and the longer this debt is left uncollected, your chances of getting your money back become slim. Consider these tips to avoid and manage debt recovery to save your business from major losses.
Reduce credit terms
If late payments and managing bad debt is a regular occurrence, consider reducing your credit terms. You may want to remove your credit terms entirely, but it is important to look at your customer base, the services you offer, and whether there is an average credit term that is expected by your clients. If you offer credit terms shorter than your competitors, you may end up losing valuable customers. However, if your credit terms are too spacious, your cash flow will be slow, putting you at financial risk.
Encourage timely payments
Your business might require a set credit term to meet the industry average. In these situations, consider offering discounts on payments made early or within a set date from invoicing. An alternative is to charge a late fee to encourage your clients to pay on time. In these situations, it is necessary to first make your customers aware of the introduction of this policy clearly through your terms and conditions. To maintain good customer relationships, try to limit overdue fees to repeat offenders. You may want to monitor incoming payments to see if these policy changes are reducing your late payments.
Hire a debt collection agency
Efforts to pursue your late-paying customers may not always be successful. If the debt amount is less than $1000, it may not be financially viable to pursue legal action for violation of your credit terms. In such situations, consider outsourcing your debt collection to professional collectors. However, timely involvement is key to getting your money back. Give your clients sufficient time to make a payment, and if over two times the trading terms have passed, hire a collection agency to prompt your clients into making defaulted payments.
Turning an idea into a business requires money, and securing this stable funding is not easy. Businesses have a variety of innovative funding options today, but before you pick one, you may want to consider how well some of these methods fit your business model and if you can really benefit from them.
This is a form of financing that pairs you up with people online that are willing to lend money to your business, without going through a financial institution like a bank. It involves filling in an application on a peer-to-peer lending website, where your risk rating is determined based on your security, creditworthiness and revenue projections. Once approved, other members on this platform can see your request and may decide to lend you money.
If you are looking for a smaller loan, P2P might be ideal for you. Despite the cap on the maximum loan amount, its easy online application and competitive interest rates make P2P a great way to finance your transactions.
More business owners are turning to the internet to grow their business. Crowdfunding is a way to gain finances without going into debt. These platforms involve business owners pitching their business and asking for funds in exchange for some type of reward, like early access to your products or exclusive discounts for investors.
However, crowdfunding is not a long-term financing solution. Your business might benefit more from this if it is an innovative idea, and if you are looking for a one-off financing option that is cost effective. Crowdfunding offers the added bonus of gauging how people feel about your business – which is essentially free product-testing and customer feedback.
Purchase order financing
POF works by converting your incoming orders into collateral. When you engage with a POF company, they directly pay your supplier so the order can be met. The customer then pays the POF company directly, which then deducts its fee before returning the payment to you.
This can be a great option for small businesses that may not be able to financially take on larger orders. However, it is important to note that POF companies limit their services to product-based businesses, and their fees can be quite high.
In an effort to minimise physical contact during the global pandemic, most businesses are making the switch to cashless payments. While contactless credit cards and mobile wallet applications remain the most common type of cashless payments, many other methods have emerged in recent times. In the event that your business is also looking to make the switch, here are a few cashless payment types to be aware of.
Radio-frequency identification (RFID):
RFID uses radio technology to track tags containing electronic payment and banking information. RFID tags are most commonly attached to wristbands, watches or badges and can be scanned using mobile phones and RFID system technologies.
RFID tags can also be used at business events or service-providing organisations to keep track of clients while also acting as their digital wallet.
Unstructured Supplementary Service Data (USSD):
USSD services are another real-time cashless payment method which require a mobile network. With the USSD method, clients must dial a USSD code on an interactive menu provided by the business (could be a mobile phone), which will then allow clients to make payments to chosen recipients. The USSD code is dependent on a client’s mobile network and in order to make successful payments, clients must have their bank accounts correctly linked to their mobile phone number.
Quick Response (QR) Codes:
A QR code is a two-dimensional gridded pattern of black squares and is a viable cashless payment method as long as both clients and businesses have modern image-reading and camera technologies. Payments made through QR codes require a user to scan the QR code of a merchant to complete the transaction and can be done through banking apps or third-party payment applications on mobile phones.
While it may be tempting to make an immediate switch into cashless payment methods, the technology required to support cashless transactions is a costly investment. Before jumping the gun and spending money you do not need to, take note of which cashless payment methods would best accommodate your clients’ needs and fit into your existing business operations.
Running a business is challenging enough, and having to deal with bad debts can add an unneeded layer of stress for you and your team. The easiest way to handle bad debts is to avoid them in the first place – here’s how.
Do a background check:
Before you enter into an agreement with a client or other businesses, make sure that you know who you’re dealing with and do some research. Make sure they are legitimate, still in operation and look for any bad reviews and feedback concerning other people’s experiences with them. Take into consideration whether they ask you for discounts or complain that your fees are too high. If you get the idea that the client may not pay, it might be safer to avoid the job instead.
Have clear payment terms:
In your client agreement or contract, include payment terms that clearly state payment dates penalties for late payments. Both parties should agree on these payment terms prior to entering into a contract. Conditions for late payments could include interest fees, fines, or the cessation of supplying your goods and services to them within a specified time period.
Ask for a deposit:
When you ask for a deposit and the client does not want to pay, it shows that they are probably not trustworthy and may not be willing to make a full payment. If the client does pay you a deposit or but does not make a final payment, then at the very least you will not have lost as much money as you would have without an initial payment.
Setting up an automatic payment system for your clients eliminates the chances of them forgetting to pay or refusing to pay unless they actively cancel their payments. Automatic payments can work well if you have instalment fees or a subscription-based service that requires periodic payments.
Follow up quickly:
Making contact with clients soon after a missed payment will demonstrate your expectations to be paid in a timely manner. Often, this means that clients managing cash flow problems are more likely to prioritise payments to your business rather than their other creditors who have more relaxed payment systems.
Small business owners are often faced with stressful financial decisions and periods of uncertainty. Having a cash flow forecast can help your business avoid cash shortages by allowing you to track whether your spending is on target, prepare for business expansion, plan for upcoming cash gaps and plan budgets. Here are some tips on cash flow forecasting to help your business be in control of its finances.
Prepare a sales forecast
Existing businesses can look at past years’ sales figures, taking note of busy and quiet periods, and prepare an income prediction based on historical trends. If you’re a new business, you can start by making cash outflow estimates. This can help you plan for what sales you should aim for to cover this and make estimates of predicted sales.
Knowing how much money you’ll have in a week or a month is central to being able to budget and know when to pay your expenses. Whether you receive customer payments at the time of sale, or you receive payments based on a subscription or service, you can schedule expenses and budget based on payment periods.
Account for other income forms
Your business may generate income from sources other than customers. Having an estimate of what income you’ll receive and when allows you to refine your budget and plan around payments. These income sources could include:
- Grants (such as government grants).
- Tax refunds.
- Investments in the business.
Estimate your expenses
Your cash flow forecast should include all your predicted expenses, giving you a detailed outline of the amount you’ll spend and when to help you determine a budgeting schedule and avoid cash shortages. Expenses to consider in your forecast include:
- Bills such as electricity, water, rent, telephone and internet.
- Staff wages, including taxes, superannuation or bonuses.
- The cost of supplies and equipment.
- Packaging and delivery services.
- Software subscriptions, such as an office messaging system, accounting system, anti-virus protection, website developing etc.
- Maintenance and repairs.
- Business loan or credit card repayments.
- Staff events.
- Buying new assets.
Update and refine your forecasts
As your business grows and evolves, your financial situation may change. To keep your projections on track and as accurate as possible, update your cash flow forecast regularly to account for any miscalculations, unpredicted expenses or income and business changes. Taking a few moments every month or so will keep you prepared and prevent you from being caught off guard by a sudden cash flow crisis.
Increasing living expenses and commitments can make it challenging to manage and save money, especially for low income earners. Here are some tips that may help you reduce financial pressures on a low income…
Prioritise high-interest debts:
If you have a lot of different debts to pay off, prioritise them by their interest rates. Paying off high-interest debts first can prevent you from unnecessarily losing money from interest fees.
Track your income:
Keeping track of all your income, whether it’s wages, government support or investments, can help you get a good sense of how much you’re able to spend and at what time. This can prevent you from spending too much too soon before your next income payment, and plan out the best time to pay major expenses without running out of money.
Creating a spreadsheet with your expenses and income can help you maintain an appropriate amount of spending and tell you if you’re overspending. It may take a few tries to develop a budget that suits your lifestyle, but trial and error will provide you with an accurate estimate of how much you need to set aside for different expenses. Sticking to your budget will help you grow your savings every week.
Setting up automatic transfers into your savings accounts can put you into the habit of spending less. This can be especially useful if you struggle with budgeting and want to grow your savings.
Cut back on expenses:
Unnecessary spending, such as entertainment and eating out expenses can be cut down to maximise your savings. Simple things such as packing a home-made lunch and opting for a home movie night instead of the cinema can make a huge difference if you keep it up.
Smooth your bills:
If you struggle to pay large bills all at once, contact your utility providers and ask them if they will let you smooth your bills. This means that you can make small payments more frequently instead of paying one big bill once a year. This may make it easier to budget your expenses and maintain a steady income/expenditure balance.
Increase your income:
You can increase your income by starting a side hustle or making an effort to generate more money by simple tasks such as blogging, pet sitting and selling possessions you don’t need. This can reduce the amount of financial strain you may be under.
As part of the second $66 billion support package in response to COVID-19 and its negative effects on the Australian economy, the Federal Government has expanded tax-free cash payments to small and medium businesses with a minimum payment of $20,000 and maximum of $100,000, up from the previous $2000 to $25,000 range.
However, it is important to note that payments are only given to eligible businesses after they lodge their BAS (business activity statements) by the 28 July and 28 October 2020 due dates.
The new enhanced scheme will be delivered in two phases:
- Employers are set to receive a first payment equal to 100% of their salary and wages withheld (a maximum of $50,000) when lodging their activity statements at quarterly due dates.
- An additional payment equal to the first payment made after businesses lodge their BAS by 28 July and 28 October 2020.
Businesses will receive payments based on their BAS lodgement schedules. For example, a business that receives a payment for the period up until June 2020 will receive the same amount for the period up until September 2020 upon the lodgement of their BAS in two separate occasions.
For monthly BAS lodgers, businesses will receive their first payment for the March 2020, April 2020, May 2020 and June 2020 lodgements, with a 300% calculation in the March activity statement to provide the same treatment as quarterly lodgers. Similarly, the second payment businesses which lodge their BAS monthly will be released once they lodge their June 2020, July 2020, August 2020 and September 2020 lodgements.
To remain eligible to receive the new government funding for small to medium-sized businesses, remember to lodge your BAS on time as per your usual schedule. There are several options you can consider to lodge your BAS:
- Lodge online through your myGov Business Portal
- Lodge through your tax or BAS agent (who can access your myGov)
- Lodge as “Nil BAS” if you have nothing report for the period online or through phone
- Lodge by mail
Many businesses, whether they are only just starting up or have been in the market for a number of years, will need a bank loan at one time or another. However, before you apply for a bank loan, it is important to think things through to ensure that you know if you should get one, if you are getting it at the right time and how you can make the most out of a loan.
Here are some questions business owners should ask themselves before beginning their bank loan application:
How likely is it that I qualify for the loan?
If you believe that your business won’t qualify for a bank loan, then you will only hurt your credit rating if you apply for a loan you won’t get. Being rejected for a loan can also make it more difficult for a business to borrow in the future.
Will the loan help the business grow?
Instead of using the loan for aspects like routine operating expenses that don’t generate much revenue, owners should consider putting the borrowed money into parts of the business that will generate more revenue and help reduce future borrowing needs.
How much do I need?
Before making requests of the bank, try to make an accurate estimate of how much cash you’ll really need. You can do this by creating a cash flow forecast with projections of your monthly income and expenses.
Are my personal finances in order?
Until a business reaches a substantial size, many banks will rely heavily on the owner’s personal financial statements and credit scores to determine the business’s creditworthiness. This may involve bankers looking at your personal information like student loans, personal credit card debt and mortgage payments.
Do I have adequate documentation for the loan?
When applying for a business loan, you will need a lot of documentation. Requesting a loan when an owner is not fully prepared makes the business look unprofessional.
Do I have adequate cash flow to repay the loan?
When a business owner applies for a loan, their banker will require the owner’s estimated financial projections for the business. It is important for owners to include their debt repayment plan in those projections.
Investing in shares is a popular method of growing your wealth, however, there are tax obligations you need to be aware of to get an accurate sense of how much you’ll need to put aside for your investments.
When you own shares, you need to declare all your dividend income on your tax return. It is possible to claim tax deductions for certain expenses you pay to receive income from your shares. The deductions you are eligible for will depend on if you are carrying on a business of share trading or if you are an individual share investor, but they can include:
- Management fees: the payment of ongoing fees or retainers to investment advisers are tax-deductible.
- Borrowing expenses: the expenses of borrowing money for shares may be tax-deductible. This can include establishment fees, legal expenses and stamp duty on the loan.
- Interest: if you received a loan to buy shares, you can claim a deduction for the interest incurred on the loan if it is expected that assessable dividends will be derived from your shares.
- Travel expenses: if you need to travel for the sole purpose of working on your share investment, such as travelling to consult with a broker, you may be able to claim a deduction for the travel expenses incurred.
Individual share investors cannot claim a deduction for the cost of acquiring shares, such as costs for brokerage and stamp duty, however, they can claim deductions on the prepayment of expenses related to the shares such as internet fees or seminars.
Buying and selling shares can involve capital gains tax (CGT), depending on whether you make a capital gain or a capital loss on your shares. Your capital gains or loss is the difference between the price you paid for the shares and the price you sell them for. If you end up selling your shares for more than you paid for them, then you make a capital gain which may be taxed.
How much CGT you need to pay varies depending on:
- How long you’ve owned the shares for: if you have held the shares for more than 12 months, you can usually discount a capital gain by 50%.
- Your marginal tax rate: your capital gain will be added to your assessable income in your tax return and taxed as part of your income at your marginal tax rate.
- If you’ve also made any capital losses: only your net capital gain will be taxed with your assessable income, meaning that if you’ve also made capital losses then they will be subtracted from your capital gains. If you have more capital losses than gains, you are generally able to carry the capital loss forward and deduct it from any capital gains you make in future years.
A financial dilemma that is becoming increasingly common is finding a way to fund a comfortable retirement lifestyle without having to sell the family home. One solution to this is a reverse mortgage; a loan that allows homeowners to convert part of the equity in their home into cash.
Money from a reverse mortgage can then be received as a regular income stream, line of credit, lump sum, or a combination of these options. No income is required to qualify for a reverse mortgage, which makes them ideal for those who have retired from the workforce.
Given the nature of this type of loan, it is important that homeowners understand the risks involved and consider how they can protect themselves as much as possible. Risks associated with reverse mortgages include:
- The interest rates are usually higher than average home loans.
- Variable interest rates mean that there will be changes to what you are charged over time. Debt can rise quickly since the interest compounds over the loan term.
- The loan can affect your pension eligibility.
- Drawing funds from your property can reduce what you could potentially access later on, leaving little left for aged care or other future needs.
- For those who fix their interest, the costs to break the agreement can be very high.
- If you are the sole owner of the property and someone lives with you, that person may not be able to stay when you die (in some circumstances).