Author: Adam_Admin

Getting your money back from late-paying customers

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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.

How to avoid SMSF disputes

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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:

  • investment strategy disagreements,
  • differences in opinions over the payment of benefits, especially in SMSFs involving both parents and their children,
  • payment of death benefit disputes, and
  • disagreements on the distribution of SMSF death benefit payments between surviving members.

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.

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

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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:

  • JobKeeper payments,
  • Supporting Apprentices and Trainees wage subsidy,
  • Grants under the Australian Apprenticeships Incentives Program,
  • Subsidies for carrying on a business.

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:

  • used crowdfunding in the course of your employment,
  • entered into a transaction with the intention of making a profit
  • received money or property in the ordinary course of your business.

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:

  • Your main intention is to make a profit,
  • You sell items online on a regular basis,
  • The items or services you are selling are commonly available in a physical store, and
  • You pay for your online-selling presence.

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.

Common tax mistakes that businesses make

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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.

What circumstances permit early access to your super?

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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:

  • medical treatment and medical transport for you or your dependant,
  • palliative care for your or your dependant,
  • making a payment on a home loan or council rates so that you don’t lose your home,
  • accommodating a disability for you or your dependant, or
  • expenses associated with the death, funeral or burial of your dependant.

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:

  • you have received eligible government income support payments continuously for 26 weeks, and
  • you are unable to meet reasonable and immediate family living expenses.

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:

  • two registered medical practitioners have certified that you suffer from an illness or injury that is likely to result in death within 24 months of the date of signing the certificate,
  • at least one of the two registered medical practitioners is a specialist in the area related to your illness or injury, and
  • the 24-month certification period has not ended.

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:

  • the tax-free component of your super funds,
  • the taxable component your super provider has paid tax on (tax element), and
  • the taxable component your super provider has not paid tax on (untaxed element).

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.

What is the criteria for a complying loan agreement?

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Private companies may be incentivised to make loans to a shareholder or their associate during the income year in an effort to save on income tax. In order to remedy any inequities as a result of making shareholder loan agreements, the Government enforces compliance through a set number of rules. Loans which follow such rules under the Income Assessment Act 1936 will also be exempted from being a dividend.

Minimum interest rate

Loans must have an interest rate greater than or equal to the benchmark interest rate outlined in Division 7A of the Income Tax Assessment Act 1936, published by the ATO annually. The benchmark interest rate for 2020 is 5.35% (under bank variable housing loans interest rates) and is 4.52% for 2021. This interest rate needs to be applied for each year after the year in which the loan was made.

Maximum term

The maximum term for a complying loan agreement is seven years. In the case that the loan is secured by a registered mortgage over real property, the maximum term is 25 years. For a maximum term of 25 years, the market value of the property (not including any other liabilities for securing the property prior to the loan) must also be at least 110% of the amount of the loan.

Written agreement

In addition to meeting the minimum interest rate and maximum term criteria, complying loan agreements need to be made under a written agreement before the private company’s lodgement date. Loan agreements that meet such requirements will not be treated as a dividend in the income year the loan is made.

There is no prescribed form for the written agreement. However, as a minimum, the agreement should:

  • identify the parties,
  • set out the essential terms of the loans (for example, the amount and term of the loan, the requirement to repay and the interest rate payable under the loan), and
  • be signed and dated by all parties involved.

The Government introduces JobTrainer and wage subsidies

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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:

  • healthcare and social assistance
  • Transport
  • Postal
  • Warehousing and manufacturing
  • Retail trade and wholesale trade

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.

How to build a successful virtual team

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As the pandemic pushes businesses to run their usual operations online, it can be hard to make sure that your virtual teams are working efficiently and productively. Here are some tips to ensure your employees are communicating and working effectively despite being physically distanced.

Use multiple communication tools

The best way to make sure your team members are staying vocal and communicating with each other while physically apart is to use online communication tools. With the surge of digital communication technologies, remote team-building has become much easier as there are a multitude of social platforms to choose from.

Using business messaging platforms as well as programs for conference calls and screen records is helpful in establishing methods for how employees can share their ideas. Setting up different communication channels for separate teams and projects can also help in keeping your digital workplace organised yet communicative.

Include overlapping work hours

Although it may be tempting for employees working from home to work around their own personal schedule with flexible hours, it is important to schedule your employees with overlapping hours so that they can communicate effectively, similar to regular in-office operations. Having your employees work in-real-time together will help prevent miscommunication problems, quick task completion and bring them closer together.

Work with a schedule

Similar to overlapping working hours, the flexibility that comes with working from home may mean employees become unorganised and unaware of their team member’s roles and tasks. As a result, it is important to create a working schedule which all employees have access to and must follow. Constructing a routine for employees to work with, especially in the case of regularly scheduled meetings, reviews and catch-ups, will help employees remain productive and conscious of usual business operations despite being online.

The benefits of cloud computing

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Due to COVID-19, organisations are coming to the realisation that web technology is essential to today’s business-running. Out of the more common types of web technologies, cloud computing has emerged as the most important addition due to its ability to keep businesses running solely online. Cloud computing is a safe and efficient way to store all business resources on the internet and comes with several benefits.

Improved security
Your company data can be better protected using cloud computing cybersecurity, as such platforms make use of artificial intelligence technologies to keep your information safe. Using cloud computing services such as strong password protection, service network policies and firewalls will protect your business’ private information and resources more effectively than harddrive-installed protection software. Cloud computing cybersecurity services are also cost-effective, as rather than paying for spyware protection software for all of your business’ laptops, computers and other devices, one blanketing protection service for your online data is more than enough.

Employee flexibility
Keeping your business’ information and resources on the cloud will provide employees with the ability to work remotely and away from the traditional in-office style. Especially in the context of the current pandemic, improving your employees’ options to work flexibly and from home will keep employees productive and working despite social distancing restrictions. Providing employees with more work options can also improve employee morale and employee longevity, as working for your business will be convenient and safe for them.

Convenient scaling
Using digital online platforms such as cloud computing will allow businesses to grow easily and at their own pace. Improving your digital presence to reach a wider audience is easier than physically opening new business locations and expanding physically. Firms which use such technologies can take advantage of the flexibility of online servers and grow or downsize whenever they see fit. In addition, industries such as e-Commerce are becoming more popular so online marketing and operations are sure to be the future of business-running.

How can you fund your business?

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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.