Tag Archives: Invoice

Bad debt – How to avoid it!

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You gave your customer 30 days to pay, but now 60 days have passed without payment. Maybe there is a dispute. Are your cash reserves running dry because the invoices are not being paid? This guide will look at the importance of worrying about getting paid on time and how you can chase up and avoid bad debt.

Bad debt occurs when the payment of an invoice is estimated to be uncollectible. Bad debt is a contingency that must be accounted for by small businesses that extend credit terms to customers when they issue an invoice, as there is always a risk that payment will not be received.

WHY should I worry about unpaid invoices?

It does not matter if it is your best friend that has not paid you or it is a large corporation. If you cannot collect payment promptly, it will affect your cash flow and profitability, and your business will suffer. This situation is further compounded if you have already paid your costs associated with the invoice, such as materials of wages. Essentially you are lending money to your customer, and if you do not have the cash flow yourself, you may be paying interest on a bank overdraft/loan until this invoice is paid, further eating into your profits.

WHAT can I do to prevent bad debt?

When deciding to offer credit to customers, any action you can take upfront to reduce the chance of bad debt is a much simpler process than collecting money from someone who does not want to or cannot pay you.

To prevent bad debts and protect your business ideally you should:
  • Only send out goods or provide services after customers pay their bill
  • Provide simple and clear payment options
  • Invoice customers quickly and properly
  • Give discounts for paying on time or early
  • If you intend to provide credit you should research the customer:
    • Do a credit check (try Equifax, Onedeck or creditorwatch) and ask the customer for references
    • Create a business contract with clear terms and conditions using the help of legal advice
    • Set up effective payment terms
Have a process to manage payments and debt recovery, a good accounting package will help with this:
  • Check contract terms to see when payments are due
  • Ensure you have the right contact details
  • Contact the customer in writing to request payment
  • Keep records of all customer correspondence
  • Set up regular payment reminders (some accounting packages will have an automated system for this)
  • Telephone the customer
  • Send a formal letter of demand

Most important is to create sensible limits on the credit you offer to your customers that they will be able to repay easily.

To prevent bad debts, a factoring company will buy your outstanding invoices from you for a reduced cost and then chase up the debt themselves. It is a fast way to get cash but at a high price as they take on the bad debt risk. (It is unlikely they will not just buy the bad ones)

HOW to deal with bad debt?

The first step is to understand the cause of the debt:
  • How long has it been outstanding?
  • How much is owed?
  • What is the invoice for?
  • Is the invoice disputed?
  •  Is the debtor still trading?
  • How long have you been doing business together?
  • Does the debtor have a history of late payment, is this different to normal?
  • What credit agreement do you have with them and did they sign a Director’s Guarantee?

The sooner you take action to recover your overdue debt, the more likely you will recover your money.

If a customer has not paid you after various attempts, you must decide if the debt owed is worth the additional effort to collect it. For example, $100 is possibly not worth it, but $10,000 is. You must consider your time and cost to recover as well as the likelihood of the debtor paying.

The following avenues can help recover debt:
  • Debt collection agencies – will attempt to collect the debt on your behalf for a percentage of the debt owed.
  • Legal action – a lawyer can issue a lawyers’ letter of demand or start court proceedings.  An online letter service is relatively cheap but going to court is not, however, the recovery costs can be added to the debt.  Court proceedings will enforce an outcome and affect a debtor’s credit rating.
  • Small claims tribunal – provides mediation and a legally binding solution without having to involve lawyers and courts. Is good for resolving disputes. https://www.accc.gov.au/contact-us/other-helpful-agencies/small-claims-tribunals
  • Court – courts will decide on disputes where the amount owed is too high for a small claims tribunal. Consider using a lawyer if your case goes to courts as procedures are more formal and complicated.
  • Community legal centres – can assist with letter writing and filling out court forms https://clcs.org.au/
  • Small Business Commissioner or Ombudsman – advice on how to recover debts and subsidised or low-cost dispute resolution https://www.asbfeo.gov.au/disputesupport

As a small business, you can also take out Trade Credit Insurance which allows a business to insure themselves against bad debts.

As a business owner, you should consider some sort of provision (put money aside) for bad debts, and this is essentially self-insurance. From an accounting perspective, unpaid bad debt can be an allowable deduction as long as it was included as assessable income in the present or even a previous income year and that it is written off as “uncollectable” in the same year that a deduction is claimed.

HINTS

Unfortunately, some scammers ask your clients to pay your recent invoice into a new bank account, being the scammers’ account. Ensure your clients understand that you would not change your payment details, and in the unlikely event you did that, there would be a very clear and robust process in writing and over the phone.

If the business you are dealing with is in administration, liquidation or deregistered, they may not have the ability to pay you. Check whether a company is in liquidation or deregistered on ASIC Registers. https://asic.gov.au/online-services/search-asics-registers/

Let your customer know you plan to take legal action or use a debt collector. This may have an effect without the cost.

SUMMARY – fast action to recover debts

If you decide to offer credit to your customers, you can find yourself in a situation where a customer is refusing or cannot pay your invoice. This is known as bad debt. It is best to have a plan to avoid bad debt, but if it occurs, fast action brings the best results. Your best chance of recovery after your efforts have failed is via a small claims tribunal, using a debt collector or the services of a lawyer.

Scan invoices and receipts for accounting software

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By any chance, do you have a shoebox of receipts and a pile of invoices that you need to process?
Making sense of all of this can be a real chore and frustrating. A solution is to scan invoices and receipts. In this guide, we will touch on the importance of keeping good records but focus our attention on making this whole process simpler.

Importing of paper receipts or invoices refers to creating an electronic copy of a paper document that can then be stored or imported into an accounting package. Examples of accounting packages include MYOB and Xero

WHY should I digitise my receipts and invoices?

Keeping good records is important for any small business. Whether that is to help manage your costs, for legal, regulatory or tax reasons, or simply to help manage and improve your business. Collecting, storing, and effectively analysing your data is vital.

The Australian Tax office requires you to keep copies of invoices and receipts for five years.
This subject is covered in detail in our guide to Record Keeping for small businesses.

To scan invoices and receipts or to digitise them has the following benefits:
  • Records can be kept electronically, enabling them to be searched quickly
  • Physical copies do not have to be held. Thus, saving physical storage space
  • Electronic copies of invoices and receipts can be directly imported to accounting software packages saving you having to retype the information
  • Electronic importing of these scanned documents to accounting packages can reduce data input errors.
  • Records can be kept easily for legal and government purposes.

WHAT do I need to know about accounting?

An accounting system for your small business can be done manually, via spreadsheets, or through an accounting software package. Visit our guide on Accounting Software to run your business to understand more. The accounting software packages you should consider in no particular order include Xero, MYOB, Quicken, Reckon, QuickBooks and Sage.

You may do this yourself, hire a finance employee, use an external bookkeeper or retain an accountant. Irrespective of how you achieve your record-keeping, digitising those records will save you money and time.

Invoices and receipts are both a cost of running your business and must be measured accurately. These costs have a GST component which must also be tracked.

HOW do I scan invoices and receipts?

Ways to digitise receipts and invoices:

  • Have invoices and receipts emailed to you in the first place. For most business to business invoice transitions, this is commonplace. Even bunnings and coffee shops are now offering to email you a receipt
  • Most of the accounting software package companies referenced above provide an App that allows a paper invoice or receipt to be photographed, creating an electronic version. This process has the added benefit of the information automatically populating in the accounts package.
  • Most modern printers and photocopiers have a built-in scanner. This can be a time-consuming process but utilises resources you already have.
  • Purchase a dedicated receipt scanner.  These purpose-built scanners can scan multiple pages at a time and come with included software to process information from the documents ready for importing into an accounting package. This is a great solution if you have many paper documents that need to be processed.

Suppose you intend to use your digital or scanned image in an accounting package (excluding a provided App). In that case, you need to go through importing that document so it can be used. Your accounting package help function will explain this process.

You should ensure that your records are filed properly within your computer network and that backup copies are kept. This will ensure they can be found and recovered in the event of a disaster.

HINTS

The most common digital format is a PDF file. JPEG files can also be used.

Epson Australia offers the RapidReceipt RR-600W for $699. This wired or wireless scanner can scan up to A4 double-sided documents as fast as 35 pages a minute. The unit features a 100-page document feeder and a 4.3-inch colour display.  The display allows you to scan to a PC, USB thumb drive or cloud storage services such as Dropbox or Google Drive. The included Epson ScanSmart software can automatically extract data from receipts and export to XERO®, MYOB®, QuickBooks® Online or Excel. A side benefit of a product like this is it can be used to scan all sorts of documents like photo’s so you just might find yourself using it at home on the weekend.

SUMMARY – Scan invoices and receipts

Accurate financial reporting to your business is important. The ability to scan invoices and receipts lets you organise financial paperwork and accurately processing piles of messy receipts and invoices. Any method that can reduce errors, increase productivity and streamline the process is valuable.

Utilising the latest tools and equipment for which you probably already have can deliver these results. Teaching yourself, your staff will ultimately remove frustration, make things simpler and help with compliance.

Accounting Software to run your business

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You started with a shoebox of receipts, now you have a storage box or maybe you are meticulous and have it all on a spreadsheet.  Either way it is time to start thinking about accounting software. This guide will look at why you need it and lead you through what you should consider in making your decision.

Accounting software, package or system describes a type of application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, journal, general ledger, payroll, and trial balance. It functions as an accounting information system.
source Wikipedia

Accounting software has changed a fair bit over the last few years with new competition driving new features and simplicity.  Probably the biggest change however is that it is all in the cloud. Put simply this means you rent access to the solution and do everything via the internet.  You no longer have software that you must buy and host internally on extra computer hardware that you must keep safe.  Instead you have a user-friendly solution that you can access from anywhere that integrates with your bank, POS system, etc.

WHY should you buy Accounting Software?

WHY should you buy Accounting Software?

Saves you time – track invoices, manage bills and expenses and pay staff in a few clicks
Tax time ready – calculate GST, PAYG and BAS reports
Built for Australian legislation reporting
Get paid faster – online invoices, pay now buttons and automatic payment reminders
Enter receipts on the move – use your smartphone to take a photo of the receipt from Bunnings. Great for travellers and tradies.
An external accountant or bookkeeper can have instant access at the same time you do
Reporting lets you quickly get a good idea of how your business is going now
Accounting software becomes increasingly beneficial as the business gets more complicated

HOW to make a decision on which Accounting Package

So now we understand that this software solution is so much more than getting a bill in the system, it is about automating the whole process.  Let us look at the features you should consider when selecting which vendor:

  • Different accounting package vendors offer different features and even within the same company they offer different levels which means you only get what you need.  For example, if you have no employees you do not need the payroll functionality. Consider what package you will need?
  • Pay Staff – Do you want payroll integration? Does the system calculate all payroll requirements including PAYG, annual leave, long service leave etc.? From July 2019 small employers with 19 or less staff must report payroll info to the ATO through Single Touch Payroll. https://www.ato.gov.au/Business/Single-Touch-Payroll/ (Be sure to read our essential guide on Payroll)
  • Ease of use – As an untrained small business owner how easy is it to learn to use the package and be assisted through the software to understand what the requirements are of controlling your finances?
  • Invoicing – Send customised, trackable invoices.  Can clients pay right from the invoice?  Can automatic payment reminders be sent?
  • Tax and GST –  Can you easily and automatically track what you owe, and see all your position at a glance?
  • Does the software support Standard Business Reporting (SBR) allowing you to lodge your GST BAS requirements? (Be sure to read our essential guide on GST)
  • Application integration – Can the package be connected to other software solutions you are using?
  • Time tracking and billing – If you charge by the hour are there features that will simplify gathering this data? For example, a smartphone App.
  • Reports and budgets – What level of detail do you need and can you compare against a plan or budget?
  • Track jobs – Does the system track stock, work in progress, orders, jobs, and other task management requirements?
  • Bills and expenses – How easy is it to upload your bills and easily categorise expenses?
  • Point of Sale (POS) integration – Is there a seamless connection to track sales and inventory movements?
  • Inventory – If you hold inventory/stock will this package help you forecast and manage it? Can you barcode scan items in and out if you want to?
  • Bank Reconciliation – Will the system be able to handle multiple bank accounts?
  • Manage customers & suppliers – Can you easily see which customers owe you money, and which you need to follow up on?
  • Take payments – Does the software allow EFTPOS or credit card processing?
  • Cash flow management – Can you see your money in and money out at a glance, and understand quickly what your cash position is?
  • Online accounting – Is there a smartphone or tablet app that lest you enter data or receipts as well as run your business from anywhere?
  • Multi-currency – Does the system need to handle foreign currency?
  • Account sharing – Can you invite accountants, bookkeepers, and partners so they can help you manage your business?
  • Security – What security and backup procedures do they offer to help you protect your data?
  • Customer Relationship Management (CRM) – Does the system keep detailed records on customers including what they buy, how often they buy, and when they buy?
  • Service – What support and training are available, what hours and does that support understand Australian regulations?

HINTS

For more information on what accounting tools are available and the specific features, they offer visit

Free trials are available to help you compare and chances are your financial expert will have an opinion on which one to use.

The accounting software packages you should consider in no particular order include Xero, MYOB, Quicken, Reckon, QuickBooks and Sage.

SUMMARY – Right Accounting Software

Having the right accounting package will save you vast amounts of time and effort and will help keep your business compliant with government regulations. 

Although these modern tools are brilliant in helping you control your business finances they will never replace having access to a financial expert.  We strongly recommend you have access to an accountant or bookkeeper to help guide you.

If you do not have external financial support today you can visit this site to help you find the right person

How to Invoice

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As a small business owner, you need to keep track of how much money is coming in and how much money is going out. The collection and creation of invoices is a key way to achieve this. Thus you need to know how to invoice.

In this guide, we will look at why, in most cases, legally, you must provide invoices to your customers and how you go about creating one. We will also look at when and how you want to get paid.

An invoice is a time-imprinted business document that itemises and records a transaction between a seller and a buyer. If the goods or services were purchased on credit, the invoice usually specifies the terms of the deal and provides information on the available methods of payment.

WHY should I invoice my customers?

If your business turnover exceeds $75,000, you must register for and pay GST. See our guide on GST. When you make a sale of $82.50 or more, including GST, you must issue an invoice.

If your business has a turnover of less than $75,000, your customers may demand an invoice, and even if they don’t, it is simply good business practice.  We have written a comprehensive guide on Record Keeping.

Legally you must keep a copy of your invoices for 5 years.  This can be a paper copy or electronic.  These copies will help you fill out your BAS.

If a customer requests an invoice, you must provide it in under 28 days.

WHAT terms should I offer my customers?

Before we look at the invoice itself, a very important decision needs to be made about whether you will offer your customers any credit.  This is when you expect to get paid for the goods or services that you are providing.  Options include:

  • Deposit – You require a percentage of the total upfront to start work
  • Cash on delivery – full payment is made at the time of delivery of the product
  • Payment on completion of work – full payment is made at the time of completing a service
  • Progress payments – a schedule of payments normally with milestones are set through the project
  • Credit terms – the customer is given a set number of days to pay
  • Discount for early payment – You offer an incentive or discount to pay an invoice early, like a 5% discount if they pay within 7 days

Ideally, you get paid early or at the time of delivery, however, many businesses will not accept that if you want to do business with them.  Unfortunately, some companies have conditions whereby you have to accept terms of up to 120 days if you want their business.  This is robbery, and the norm would be 30 days. The longer a business takes to pay you helps their balance sheet, the quicker you get paid helps your balance sheet.

You will also need to decide what payment methods you will accept.  A bank transfer will be the most attractive as it will not attract fees, you don’t have to handle cash, and the money should move to your account within 24 hours. Cash will require you to visit the bank.  If you decide to accept a credit card or Buy Now Pay Later (BNPL – for example PayPal), you will get the money straight away, but you will have to pay a merchant fee in the form of a percentage of the transaction.  This payment form is convenient for the customer and will get the money to you fast. 

Whatever form of payment or payment terms you decide to use, you will need to consider when building your cost model.

HOW to invoice

By far, the easiest way to produce an invoice is through an accounting package.  If you create one manually, this can easily be done using a spreadsheet or word processing application. You will find many templates available in those applications, as well as downloadable templates from the internet.

In Australia, an invoice must include:

  • the heading “tax invoice”
  • Your business or trading name
  • your Australian business number (ABN)
  • date of the invoice
  • a description of the items sold, including the units (hours or goods) and price
  • the GST amount– this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, a statement which states ‘Total price includes GST’ (only applies if you are liable for GST)
  • If the invoice is over $1,000, including GST, you must also include the buyers’ identity or ABN
Example

Tax Invoice

Freds Shop                                                                             17 Fake St
ABN: 32 123 456 789                                                           Your Town State Postcode

Date:  25 March 2021

To:         Valuable customer
              56 Down Rd
              Town State Postcode

Description                                                   Quantity             Total
Widgets                                                          1                           $40.00
Labour                                                            2hrs                     $80.00

Total Price including GST                                                       $132
GST                                                                                              $12.00

HINTS

Now you have created your invoice, you need to send it to your customer, with the most common form these days being via email.  Ensure you have the right contact, and it is also worth copying it to a company’s accounts payable team. You can, of course, hand-deliver or post.

If your customers do not pay your invoices, read more about your options in our guide on bad debts.

The tax office provides guides on requirements for tax invoices here.

SUMMARY – How to Invoice

Accurate invoicing will help you keep your business in check and the ATO happy.  An invoice can be easily created. You can use an accounting package to help with the greater task of managing to invoice and your accounts.  If your turnover exceeds $75,000, you must provide invoices that specify GST.  Invoices are not required for amounts less than $82.50, including GST.