If your business is going gangbusters and you are making sales hand over fist – one would expect that greater business profits would follow close behind. Unfortunately for many businesses this is not the case. There are many situations when a business is operating at peak capacity and the business owners are often completely occupied with making sales and satisfying customer’s requests and demands. So busy in fact that they don’t take the time to follow up the sales at the other end…..the payment end. COLLECTING RECEIVABLES Allowing customer payments to lapse beyond the 30 days may result in you not collecting them at all. In addition, the delay may cause you pain as your cash flow will take a dive – even if only for a few weeks this can substantially affect some small operators. Keeping on top of your outstanding payments is one of the most important aspects of the business process. If we allow our customers too long to pay then we will be stuck with cash flow problems. Ideally customer receipts should be collected prior to supplier payments being due. For example giving customer terms of 7 -14 days whilst paying suppliers on 30 day terms may provide you with the time you need to collect sales receipts prior to making your supplier payments. This will ensure a good cash flow cycle will ensue and eliminate dips in your available cash further down the track. CASHFLOW PLANNING Of course nothing takes the place of having good cash reserves in your bank ready to meet your obligations when they fall due but in the early days of a small business, you may not have had time to build these up. Once you begin to make a profit it is good to start forward planning for liabilities such as GST, PAYG and super. Create a reserve account that allows you to calculate as you go (ie on a monthly basis) and put the required amount away until it is due to be paid. Hopefully you will gain some interest on this money – although unless it is a large amount and you put it away for at least several months, the return may not be there. One of my clients likes to pay the ATO in Advance – making payments on a regular monthly basis to their ATO Integrated Client Account. This also works for Business tax instalments. That way when the time comes for the payment to be made, there is already a credit sitting in your account. PAYG instalments are also helpful as they ensure that you have covered your tax liability in advance. When you prepare your tax return it is a great feeling to know that you have already paid all or at least most of it. Once of my clients was very happy to see that they would receive a large refund (of course the downside if this is that it meant that his business has not performed as well as it did last year. Regardless, he received back cash that he needed for the upcoming months. The most efficient way to ensure that your customers pay on time is to have a regular accounts receivable follow up process. This means reviewing your aged receivables report on a regular basis and ensuring that no customer accounts become overdue. At the end of every receivables due period you should send a statement (fortnightly or monthly depending upon your terms). If and when an account exceeds it due date, a phone call to check that they have received the paperwork is usually enough to resolve the issue. Sometimes a second, more insistent call is required and then ultimately you may need to institute a series of letters advising of possible legal recovery action. All of this needs to put considered in light of the amount of the debt, your relationship with the customer and the delivery of services. The worst case scenario is that you will end up in the magistrates court with a small claim or if a larger case it may proceed further. The further the matter proceeds, obviously the costs will increase so you will need to take this into account. Nothing beats maintaining good client relationships and the best possible outcome is to negotiate a payment plan – better to get your money over time than to get nothing at all or incur unnecessary legal costs. At the end of the day – if the client cannot pay then they cannot pay. Insolvency rarely results in a pay day for anyone but the Receivers managing the wind up of a business. CONTROLLING EXPENSES One sure way of reducing your business cashflow is to overspend. Committing funds to purchases of capital or non-productive purposes can severely hamper your ability to pay your suppliers bills when they fall due. Keeping good relationships with your suppliers is imperative if you want to ensure continuity of supply. This is why you should always endeavour to pay your bills on time. If you are experiencing unanticipated hardship which prevents you from making payments on time then it is very important that you talk with your suppliers and make alternative arrangements. Most companies would be happy for you to do this. They value your business and don’t want to lose you as a customer so will be prepared to wait it out – as long as you continue to communicate with them. This only lasts for a short while however and then you may have to make the payment or lose your suppliers good will. Prevention is always better than a cure so good cashflow planning and budgeting is essential to make sure that you spend only according to your means and stick to your budget. BOOKKEEPING SERVICES Not all business owners know every aspect of their business or have the time to manage the day to day aspects of their business, especially when it comes to their finances. Keeping track of these records just eats too much of their time, which is why they gladly hand them over to bookkeepers. They rely on the expertise of experienced bookkeepers and also trust that they will keep their records confidential. Reliability, efficiency and trustworthiness can be available through local bookkeeper services. So if you get too busy to stay on top then don’t hesitate to find one today to help you with your bookkeeping needs. Often the cost of paying for good bookkeeping services far outweighs the cost of not having your records up to date. The BAS Agency Pty Ltd is a small bookkeeping agency which is registered with the Tax Practitioners Board. All of our bookkeepers hold a minimum Cert IV in bookkeeping and have regular police clearance updates. All of our work is covered by the Australian Taxation Office safe harbour clause which means we are liable for errors made with your BAS lodgement. We also have professional indemnity insurance. Our office is located in Hamersley but we provide services to the entire Perth Metropolitan Area. We provide flexibility to our customers by giving them the option of us working from either our own office in Hamersley or our client’s offices, whether they be large inner city offices, or home offices. The BAS Agency can help with all of your bookkeeping and business training needs. We also supply training and assistance for software packages such as Xero and MYOB, as well as business set up so that you can focus on your business and make valuable business decisions.