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Getting your money back from late-paying customers

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.

Posted on 30 July '20, under Money. No Comments.

JobKeeper to be extended

The Australian Government has announced that JobKeeper payments will be extended for a further six months after the initial 28 September 2020 deadline. However, the extended JobKeeper program will have substantial payment reductions compared to the original JobKeeper amounts, as well as revised eligibility requirements.

The new JobKeeper flat-rate payment after September will be reduced from $1500 per fortnight to $1200 a fortnight for eligible employees who were working an average of 20 hours per week in the four weeks before 1 March 2020. The rate for employees who were working less than 20 hours per week for the same period will be reduced to $750 a fortnight. These rates are set to apply until the end of 2020.

A further reduction in JobKeeper payments will be administered from 4 January 2021. After this date, eligible employees who were working more than 20 hours per week in the four weeks before 1 March 2021 will receive a flat rate of $1000 per fortnight, while employees who were working less than 20 hours per week for the same period will receive $650 per fortnight.

The JobKeeper extension shares a similar eligibility criteria as the initial JobKeeper program, however, it will be targeting support to businesses and not-for-profit organisations that are facing continual impacts from COVID-19. Those seeking to claim the JobKeeper extension payments must reassess their eligibility by demonstrating that they have met the decline in turnover test for the new required periods. Businesses who have experienced either one of the following will meet the decline in turnover test:

To be eligible for JobKeeper from 28 September to 3 January 2021, the decline in turnover test must be met for the June and September quarters 2020. Businesses must reassess their eligibility again in January 2021 to be eligible for JobKeeper from 4 January to 28 March 2021. To remain eligible for the March 2021 quarter, businesses will need to demonstrate that they have met the decline in turnover test in each of the previous three quarters.

The extended JobKeeper program is set to end on 28 March 2021.

Posted on 30 July '20, under Business. No Comments.

How to avoid SMSF disputes

Self-managed super funds (SMSF) can be vulnerable to disputes, especially when family members are involved.

SMSF disputes may be caused by a number of reasons such as relationship breakdowns, (common in funds where parents and siblings are in a member and trustee relationship) and fundamental differences in opinions. Other common triggers for SMSF disputes include:

Consider the following methods to avoid SMSF disputes.

Clear decision-making procedures
Disagreements are bound to occur when it comes to money, so it is important to include concise decision-making provisions to keep things fair for all parties involved. For example, trustee decisions can be made by a simple majority rather than unanimously, and a particular trustee may be provided a casting vote in the case that a deadlock occurs. Provisions could also include voting rights that are based on the value of a member’s account balance within the SMSF to avoid situations where a member with minority interest out-votes a member with a large fund account balance.

Updating your SMSF regularly
An SMSF trust deed will provide provisions which determine the trustees’ rights, obligations and options. It is important to keep your SMSF and trustee information up to date to prevent any unwanted beneficiaries and claims. For example, in the case of an unfinalized divorce or legally unchanged relationship status, a former spouse can claim the others’ superannuation death benefits. To prevent such situations and avoid their inevitable disputes, be sure to update your super fund regularly.

Posted on 30 July '20, under Super. No Comments.

What types of income do you need to include in your business’ tax return?

Due to changing economic circumstances, businesses may be receiving income from sources they have never received from, and may be unaware of their tax implications. In the event that they are listed below, you will need to include them in your business’ tax return.

Government payments
Due to COVID-19, many government grants and payments have been made to businesses this year. Businesses receiving the following grants will need to report them as part of their assessable income in this year’s tax return:

Keep in mind that COVID-19 cash-flow boost payments are non-assessable and non-exempt income, meaning they do not have to be included as part of your assessable income.

Crowdfunding income
Crowdfunding refers to the usage of the internet or social media platforms, mail-order subscriptions, benefit events or other methods to find supporters and raise funds for your business’ projects and ventures. Profits made through crowdfunding are considered part of your business’ assessable income in the case that you have:

Income from online activities
The current pandemic may have also forced you to move your business operations online for the first time. The ATO provides a clear distinction between online selling as a business or hobby. In the event that you meet the following circumstances while selling online, you will need to report your earnings as part of business’ assessable income:

Other basic income streams such as cash income, investment earnings and capital gains and losses also need to be reported in tax returns as usual.

Posted on 30 July '20, under Tax. No Comments.

The Government introduces JobTrainer and wage subsidies

The Government has introduced a $2 billion JobTrainer scheme, which aims to help businesses train or re-skill workers in Australian industries of high demand.

What is JobTrainer?

The new scheme will create 340,700 job opportunities nation-wide and will be open to recent school graduates and workers looking to re-skill in a new industry. Industries that will be covered by the JobTrainer scheme include:

The JobTrainer job positions will be distributed in proportion to unemployment levels per state, with New South Wales receiving the most training places (108,600) and the Northern Territory receiving the least (3,200).

Further subsidies for apprentices and trainees

Out of the $2 billion, $1.5 billion will be distributed to subsidising existing apprenticeships to keep workers employed and trained. Subsidies will be available to cover 50 per cent of an apprentices’ or trainee’s wages (up to $7,000 per quarter) who were employed from 1 July 2020. The Government encourages businesses to continue applying for the apprenticeship and traineeship subsidies to keep their employees working in light of Australia’s 7.4% unemployment rate.

Posted on 23 July '20, under Business. No Comments.

What circumstances permit early access to your super?

Early access to your superannuation is permitted under a few limited circumstances outlined by the ATO. In the case that you are experiencing financial struggle and would like to withdraw from your super, be aware of the particular circumstances that will allow you to do so.

Compassionate grounds:

Withdrawing super on compassionate grounds is permitted in the event that you need money to pay for:

Severe financial hardship:

You can also be permitted access to your superannuation due to severe financial hardship. However, when requesting withdrawals under severe financial hardship, individuals need to contact their super provider for access rather than the ATO.

Both of the following conditions must be met for you to be eligible to withdraw some of your super:

Superannuation that is withdrawn due to severe financial hardship is taxed as a super lump sum. You can withdraw up to $10,000 from your superannuation (minimum of $1,000) and in the case that you have less than $1,000 in your super funds, you can withdraw up to your remaining balance after tax.

Terminal medical condition:

You may be eligible to request access to your super (approval by your super fund) in the event that you have a terminal medical condition and all the below conditions are met:

Temporary incapacity:

Those who are temporarily unable to work as a result of physical or mental medical conditions may be eligible for early access to superannuation. Access is dependent on the insurance benefits linked to your super account. Any withdrawals you receive are taxed (with regular rates) as a super income stream.

Permanent incapacity:

Permanent incapacity, also known as disability super benefit, allows for early access to super in the case that a permanent physical or mental condition is likely to stop you from ever working again, in a job you were previously qualified for.

Individuals can choose to receive permanent incapacity super withdrawals as regular payments (income stream) or as a lump sum. Unlike temporary incapacity, permanent incapacity super withdrawals are subject to different tax components, based on:

To receive concessional tax treatment, your permanent incapacity must be certified by least two medical practitioners.

Keep in mind that the ATO has also announced a new set of rules for the early release of superannuation due to COVID-19. Individuals who have been adversely affected by the pandemic may be eligible to access some of their superannuation early.

Posted on 23 July '20, under Super. No Comments.

Common tax mistakes that businesses make

Meeting tax obligations as a business owner can be stressful and potentially expensive if done wrong. Certain mistakes warrant severe action, so you can expect the ATO to take a closer look at them if you’ve failed to identify these errors before lodging tax returns for your business. Most mistakes made with regards to tax filing often revolve around poor administrative knowledge of tax laws. Ensure that you are aware of potential mistakes you could be making that might cost you your business.

Inconsistent declarations

The ATO gathers data from numerous businesses across a particular industry to create a benchmark showing a band of percentages within which businesses in that industry should typically fall under. Businesses that fall outside this band can expect delays and a closer look from the ATO inspecting reasons for inconsistencies within your business’ declarations. However, these can also be sources of mistakes from the ATO’s part as some inconsistencies can be very real – such as demographics or personal situations – that can cause variations in data. Ensure that you are declaring all your sales, and that any inconsistency can be justified to the ATO.

Poor bookkeeping

A majority of tax mistakes committed by small businesses revolve around poor bookkeeping. Businesses are required to maintain all financial transactions made – but forgetting to put the purchase through the register or taking money out of the register for personal use without replacement of the difference can show varying cash register tapes that can be problematic when filing your tax returns. You may be missing out on valuable tax credit claims by not keeping proper records of your financial transactions.

Employee payments

Businesses may assume that superannuation payments need not be made if they are employing subcontractors. This can be an expensive mistake, as if the worker has standard hours and is expected to work consistently for your business under your direction, they need to be treated as employees. Businesses may leave superannuation guarantee payments until the end when cash flow becomes restricted – but avoid late lodgements to prevent penalties from the ATO.

Posted on 23 July '20, under Tax. No Comments.

Common tax mistakes that businesses make

Meeting tax obligations as a business owner can be stressful and potentially expensive if done wrong. Certain mistakes warrant severe action, so you can expect the ATO to take a closer look at them if you’ve failed to identify these errors before lodging tax returns for your business. Most mistakes made with regards to tax filing often revolve around poor administrative knowledge of tax laws. Ensure that you are aware of potential mistakes you could be making that might cost you your business.

Inconsistent declarations

The ATO gathers data from numerous businesses across a particular industry to create a benchmark showing a band of percentages within which businesses in that industry should typically fall under. Businesses that fall outside this band can expect delays and a closer look from the ATO inspecting reasons for inconsistencies within your business’ declarations. However, these can also be sources of mistakes from the ATO’s part as some inconsistencies can be very real – such as demographics or personal situations – that can cause variations in data. Ensure that you are declaring all your sales, and that any inconsistency can be justified to the ATO.

Poor bookkeeping

A majority of tax mistakes committed by small businesses revolve around poor bookkeeping. Businesses are required to maintain all financial transactions made – but forgetting to put the purchase through the register or taking money out of the register for personal use without replacement of the difference can show varying cash register tapes that can be problematic when filing your tax returns. You may be missing out on valuable tax credit claims by not keeping proper records of your financial transactions.

Employee payments

Businesses may assume that superannuation payments need not be made if they are employing subcontractors. This can be an expensive mistake, as if the worker has standard hours and is expected to work consistently for your business under your direction, they need to be treated as employees. Businesses may leave superannuation guarantee payments until the end when cash flow becomes restricted – but avoid late lodgements to prevent penalties from the ATO.

Posted on 23 July '20, under Tax. No Comments.

How can you fund your business?

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.

Peer-to-peer lending
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.

Crowdfunding
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.

Posted on 16 July '20, under Money. No Comments.

Changes to business practices and TPAR

COVID-19 has forced businesses to adapt their practices to cater for social distancing measures and sanitary precautions. As a result, many businesses have taken on contractors to assist with these changes.

Businesses who have made payments to contractors in the last year may need to lodge a Taxable payments annual report (TPAR) by 28 August. This applies to the following contractor services:

In response to COVID-19 restrictions, providing additional cleaning and courier services to customers have become particularly popular for businesses. For example, businesses with limited access to physical stores due to social distancing restrictions may have paid contractors providing courier services to deliver goods to customers on behalf of the business. If the payments received by the business for courier or cleaning services provided by contractors amounts to 10% or more of their total GST turnover, they will be required to complete a TPAR. Businesses can still lodge a TPAR even if they don’t think they need to or if they are unsure if they meet the 10% GST turnover threshold.

Businesses providing courier or cleaning services using their existing employees and not contractors will not need to lodge a TPAR.

TPAR lodgements can be made using SBR-enabled business software, the ATO Business Portal, through a tax or BAS agent, or by ordering a Taxable payments annual report (NAT74109) paper form.

Posted on 16 July '20, under Business. No Comments.

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