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EOFY or the end of the financial year is the time when small businesses in Australia need to deal with their taxes. However, in 2020, this period posed numerous challenges thanks to the COVID-19 pandemic, and things look to be going on a similar course in 2021.
In this post, we’re going to take you through some handy tips that will help your Australian small business deal with the accounting and taxation challenges that lie ahead. So, without further ado, let’s get right into it!
The COVID-19 pandemic hasn’t only resulted in problems in healthcare and the economy – it’s also been the perfect breeding ground for a wide variety of cybersecurity attacks and email scams. Simply put, if you haven’t put measures in place to protect the data of your company, its customers, and its stakeholders, you should get to it without any further delays.
We recommend updating your software and using strong passwords for giving your system the protection it needs. You can also consider multi-factor authentication, which involves setting a combination of security checks. This ensures the prevention of unauthorized access to your business’ computer systems, online services, and applications. We recommend using MYOB or XERO, which are both online financial accounting software with a slew of helpful features.
The Australian Tax Office (ATO) has made things simpler for SMEs in light of the pandemic. For example, if you and/or your employees are working from home, you can claim 80 cents/hour to cover all your running expenses. This eliminates the need for going through complex calculations.
Both small businesses and employers can access helpful information that has been provided by the ATO. Some of the aspects that the ATO has focused on include:
The ATO has also provided a list of legitimate deductions for businessmen working from home, which includes:
Most Australian small businesses failed to meet their financial goals in 2020. Not much is going to be different in 2021, given that COVID-19 is still very much on the rampage around the world. In such a scenario, it’s important that you prioritize your mental health and don’t push yourself too hard to achieve the goals that you outlined in the budget 2021 for your business.
Apart from taking care of your own mental health, you should also encourage open and supportive communication among your employees, even if you are all working remotely. The Australian Government has put out some practical ways in which owners and employees of small businesses can access support for mental health issues.
According to the Government’s recommendations, mental health risks can be managed by identifying hazards, assessing and controlling risks, and continually reviewing control measures for ensuring effectiveness. You should also keep your stress levels in check and ask your employees to do the same by:
Simply put, today’s market is unprecedented, and this should be reflected in your forecasts and budgets. Take your financial advisor’s help and keep your financial statements updated, and don’t forget to reassess them periodically to keep track of accounts receivables.
Go into great detail regarding what the effects of the market are on your workforce and your business operations. If you feel you lack the intuition and foresight to predict the changes in this uncertain market, take the help of the COVID-19 Contingency Plan produced by CPA Australia. This plan is sure to give you a much clearer picture regarding the future of your small business in an uncertain market landscape.
Financial advisors are more important than ever before, and you should seek counsel from them to steer your business through this uncertain period. EOFY processes can be daunting, and if you want to tackle them yourself, it can impact your business’ productivity negatively.
That’s why if you don’t have a dedicated financial advisor for your business, it’s time you choose one. Thankfully, there are many experts out there who can help you out. While you will have to shell out more money to hire the services of a reputed financial advisor, you should consider it money that will be well spent in the long run.
Additional tips for EOFY for small businesses
So, now that we’ve taken you through the handiest tips for getting your SME prepared for EOFY, we hope that your business will be ready by the time June 30 comes around. To conclude this post, we’d like to wish your business and its entire workforce all the very best for the future.
There are three key drivers of growth in a business- product, sales, and cash collection; however, the third one rarely receives the attention it deserves. Businesses often focus on sales/marketing and product – while taking cash collection as a given. The success of many B2B companies depends on their ability to manage the receivables collection function efficiently. And this is a function that deserves more attention, investment, and, dare we say, credit than it usually gets.
When you sell a product or perform service on credit, you are also in the B2B accounts receivables collection business. The financial health of your company depends on how well your business can collect on sales. Unfortunately, it is often performed with inadequate forethought to the systems, staff, strategy, and tactics to deliver exceptional results. And businesses find that their customers are using them as a bank, with many overdue invoices impacting the cash flow and growth prospects of the company.
Here we will look at how it is possible to increase your company’s cash flow performance with better planning, execution, and technology
Credit, or rather the lack of credit-risk strategies, can often lead to bad B2B business debts. The problems can intensify with the lack of efficient operating models and insufficient management focus.
Many businesses do not implement a robust framework for credit-risk assessment. They do not follow the global best practices that reduce customer delinquency and debt collection. Not accounting for credit risk can lead to unhealthy business growth. It expands the customer base but depresses the profitability.
Companies with a credit risk framework often do not monitor pre-delinquency or follow the same approach for each bad debt. These companies seem to follow the same settlement strategies for all delinquents instead of adopting a customized approach for each such customer.
Most companies do not have a specialized debt collection team, and they mostly rely on external agencies for the same. Some outsource this job to call-center agents who lack proper training to assess a customer’s situation. These agents, thus, fail to provide the right settlement options to these customers.
When the responsibility for collections lies between multiple departments, it is difficult to establish clear ownership of credit risk. Often, such companies lack staff that specializes in credit and risk management.
Top executives seem to be more occupied by transformation, innovation, and digitization that accounts receivables & collection is usually not in the spotlight. Bad debt figures don’t often feature on the agenda, making it harder to improve the situation.
Bad debts are never good for a business. They affect company finances as well as the accounting process. Bad debts often complicate the accounting process making it difficult to comprehend when a sale was completed. Accounting for an unpaid sale requires a variety of collection and reporting procedures.
Preventing bad debts is essential not just for the company’s financial health but also to minimize reputation and relationship risks from the collection process.
Debt management is vital to a business as it ensures that the company has enough working capital to reinvest and grow. Effectively managing debt requires some thought and planning and can be controlled with these simple steps.
Most businesses have an informal arrangement for supplying goods and services. Not having clear, written terms of trade can lead to several disputes creating bad debts.
B2B companies require a firm credit policy to ensure their continued growth. Before offering credit to new customers, companies should conduct a thorough credit history and business reference check. Document the terms of business and the credit limits, and initiate business only when your customers understand, accept, and sign the business terms.
Implementing new payment terms and conditions is better done with new customers or those looking to extend their credit limit. Introducing new terms to existing customers could upset them and affect their loyalty.
Customers are more likely to pay you on time when you provide them with the right information on documents and invoices. Disputes can create bad debts that can significantly impact the business.
All your documents- quotations, invoices, contracts, purchase orders, and estimates should refer to your terms and credit policy. Make sure that the invoices and financial statements clearly show the amount due and the due date. The company’s billing address and bank account details should also be present on such documents.
It is a good idea to check with the customer if they need any additional information to expedite the payment. Indicating collection charges for overdue accounts on your invoices and statements can discourage late payments.
Well-maintained information is the key to good debt management. There are many credit management software solutions available in the market that can ease your company’s debt management process. These software solutions can closely monitor your debtors’ ledger and keep track of the outstanding payments. These solutions also offer regular reporting to help identify trends and patterns before they can impact your business’ cash flow.
One of the simplest hacks for getting paid outstanding invoices paid quickly is to add a multitude of payment options (credit card, bank transfer, cheques) – from a ‘Pay Now’ button on your invoice to enabling debt financing solutions – where you customers can get the outstanding invoices financed and pay you while they manage the repayments. The simple philosophy is to provide no excuses for your customers to not pay you – something which we adopt here at ezyCollect as well.
Accounts Receivables automation modernizes the accounts receivables process through automatic, electronic systems that decrease repetitive and time-consuming tasks. It frees up time for your accounts receivables team to chase payment and get the cash in to mitigate bad debts, rather than wasting time on printing and posting invoices.
AR automation improves the accuracy of invoicing details, leaving little to no room for an excuse for late payments. The AR team gets more time to chase payments and handle exceptions making collections fast with less delinquency.
Strengthen your delivery systems and implement the practice of keeping signed dockets as proof of delivery. When you automate the AR process, it becomes possible to send invoices ahead of time, discouraging customers from making late payments. It can also send automatic reminders when customers deviate from your trade terms.
Review the credit limits of your customers regularly. Look out for warning signals which could indicate that they may be facing financial problems. Check on all customers, even the long-standing ones, to monitor changes in buying habits or an increasing level of debt.
Wherever possible, refrain from doing business only with one substantial customer. Customer concentration risks outweigh the benefits. Be careful of customers who are expanding rapidly as their business growth can sometimes affect their ability to pay. Do exercise caution when handling requests for extending credit.
Stop supplying to customers who do not pay their accounts on time. Initiate a discussion about the situation and try and reach a settlement for payment of past supplies.
The core of a sound onboarding practice is to ensure that potential clients can pay for your goods or services. Implementing complete business credit checks allows you to access a client’s payment history, giving you useful information about their ability to pay, now and in the future. When you know a client’s potential payment pattern, you can make an informed decision if and how you would like to conduct business with that customer. The existing process of getting trade references and having your customers and sales teams fill out forms isn’t the most effective one – you might consider investing in a service or resource that can complete comprehensive business credit checks for you rapidly and help you transact with the right customers for your business
When you have insight into how a potential client manages financial responsibilities, you can make amendments to your payment terms and credit limits. Customizing payment terms for different customers helps safeguard your business from unreliable clients and cuts down the risk of bad debts. For instance, if a credit check indicates that a potential customer is a payment risk, you may front-load the payment terms or not offer credit at all.
Credit checks can be invaluable to mitigating risks and protecting your business from potentially expensive mistakes.
B2B businesses face several challenges when collecting outstanding payments from delinquent customers. Developing a well-structured process, leveraging digitization, and upgrading your teams’ resources and capabilities can maximize recoveries and prevent bad debts. With an increased focus on debt management, companies can reduce high costs and lost income and enhance customer focus, customer engagement, resilience, and profits.
Every business banks on its competitive edge in order to grow. Successful businesses deliberately expand their competitive edge beyond their product or service. You’ve probably seen this in action: they doggedly compete for the best talent, the biggest customer, the boldest campaign.
In other words, successful businesses compete for everything.
Take accounts receivable management. When other companies take the foot off the pedal once the sales order is signed, the successful business keeps pumping the gas. A successful business competes to win the job in the first place, then competes to get paid first. After all, the true measure of success is getting paid. Up until that point, your business has been competing to work for free.
Successful businesses understand that they are competing with every other supplier for a piece of their customer’s cashflow pie. The reality of the payments landscape is that every month, some suppliers will miss out. According to 2019 research by accounting software provider, Xero, each year, Australian businesses are paying the price of late payments to the value of $115 billion. That’s revenue that’s realised too late, or not at all.
But successful businesses don’t stand for this. They make their sales efforts count by actively competing to get paid. The good news is, they only need to deploy simple strategies to gain a competitive edge.
What’s more, these strategies are available to any business.
It sounds counter-intuitive to suggest that you put your customer first when asking them to pay you, right?
But here’s what successful businesses understand that others don’t: getting paid is a function of your customer’s accounts payable process. That means that your accounts receivable (AR) process must purposefully make paying you less painful. After all, parting with cash hurts.
Your customer’s accounts payable department needs to:
Remember that yours is not the only business they are dealing with. You could be one of hundreds of suppliers who need to be paid that month.
So how does your business win the payment, just like you won the job in the first place? How do you win the job of getting paid on time?
Consistency is key. Make your accounts receivable process so reliably rock solid that both your company and your customers are clear about your prompt payment expectations.
At ezyCollect, we have literally hundreds of thousands of supplier invoices running through our system daily. There’s one crucial piece of information that is the foundation of every good invoice (and the chasing process that typically follows): the due date.
Without a due date, your customer may need to manually calculate when your invoice is due. That creates an unnecessary demand on your customer’s accounts payable officer.
Include a due date on your invoice and instantly overcome:
This typically looks like a friendly email ‘Your invoice is due soon’. This achieves two key things: an opportunity for your customer to pay earlyand teaching your customers that you are on top of your invoices.
In fact, you’re so on top of your invoices that you’re ahead of them! Be consistent here and cement yourself as a business that expects to be paid on time. Your customers won’t have to think too hard about which supplier to pay — they’ll know that you won’t be letting a single invoice slip under the radar.
It’s a known fact that errors in invoices equal payment delays. Not only do you irritate your customer, but a disputed invoice takes extra admin time from both sides to rectify.
Invoice errors give customers an easy opt-out of paying you. Your customer can take their time alerting you to the invoice error, and you’ll need to invest more time to re-issue it. All of this unnecessarily slows down your collection time when your goal is to speed it up.
Have you ever sent an e-newsletter without a call to action: Read More, Get Started, Call Now? You wouldn’t dream of it, right?! Putting a call to action on sales material funnels your audience to where you want them to end up.
Now think about your invoice. Does it have a clear call to action?
In the picture below, we’ve added a ‘Pay Now’ button to the invoice. Successful businesses add these to their payment reminders, too. With a call to action, you give your customers a streamlined journey straight to your bank account.
Every day you’re not getting paid is costing your business money. It’s money lost from your own cash reserves. It’s money you don’t have to buy an early bird discount, buy in bulk for cheaper, or pay your own suppliers.
Successful businesses that get paid on time don’t let time slip away:
You’ll be surprised how many of your customers rely on your reminders to push an invoice to payment. Suppliers know they should be reminding customers to pay, but only have the bandwidth to send one or two reminders per debtor. Even so, a lot of the smaller accounts miss out on reminders because there’s not enough time to contact every account holder,
Priority payees do it differently. They keep reminding, they communicate their reminders by email, SMS and phone, and they don’t over remind. Automation software is the key to hitting the sweet spot of reminder success. Without it, your reminders are likely to be haphazard, incomplete and labour-intensive for both you and your customer.
At ezyCollect, we see the monthly statement as a crucial trigger to getting paid on time. It’s a non-negotiable for successful businesses because they are so effective in prompting payments.
What the monthly statement offers your customer’s accounts payable department is:
For your business, the monthly statement is another opportunity to:
Priority payees are prepared to get on the phone and generate a payment discussion with their debtor. That sounds simple enough but there’s a real skill in getting the results you want over the phone:
When others businesses stall in their collection efforts, successful businesses succeed by calling in the experts. Their debt collection or legal service partners are ready to send a demand letter or go into debt collection mode. By building out their network of partners, successful businesses can continue competing for the payment while other businesses run out of time and options to chase down the money they’re owed.
Of course, you can quickly nullify all of the above if you let down the side with poor interpersonal skills. Yes, this is B2B, and relationships do matter! You’re likely to still be in the hands of a person who manually pushes your invoices through their accounts payable process (e-invoicing might reduce some of this friction in the future).
There are universal interpersonal skills that are a huge bonus in collections: listening to understand, negotiation, empathy. Offer this to your customers and build them into your accounts receivable system and service. In our experience at ezyCollect, when you focus on people, money follows.
ezyCollect’s accounts receivable platform is purpose-built to get businesses paid faster.