Managing Money and Finance

Getting paid


Many businesses fail to clearly establish their terms of credit and can suffer from cash flow problems as a result. Establishing clear methods and terms of payment is vital. Collecting money on time will not only ensure cash flow, it will also be an important method of communication with your clients or customers. Without the correct system in place for timely collection of payment you allow your customers to dictate the terms of your business.


Don’t allow debts to remain uncollected as they will quickly become a burden on the cash flow and stability of your business. By failing to demand prompt payment on debts you risk losing credibility as well as money. If a customer detects you are lax about chasing account payments, they might take advantage. No serious business would allow a customer to repeatedly fail to pay accounts by the agreed date.


Have a clear system is in place before you even open your doors. Terms of payment should be made in writing and signed by your creditors, clearly establishing how much is to be paid and when. When invoicing a customer, the amount to be paid and the due date should be prominently and clearly displayed at the top. The debt is tied to the expected date of payment and penalties should apply for overdue bills.


Your invoice must include:

  • The words “tax invoice”.
  • Your business name.
  • The date of the invoice.
  • Your Australian business number (ABN).
  • Your customer’s name.
  • A description of the goods or services performed.
  • A breakdown of costs, displaying product, service and tax costs.
  • The total amount paid or payable.
  • Due date for payment.



Guide timeline for debt collection

Issue an invoice at the time of the sale. Then after:

  • 21 days: Send a “friendly reminder”. If not paid, send reminder statement, restating terms and pointing out payment is overdue.
  • 30 days: If the account is still not paid, send a reminder that it is now overdue.
  • 45 days: Send another reminder, stating your trading terms, and make a follow-up call.
  • 50 days: Stop supplies until paid.
  • 60 days: Issue a final reminder and warning.
  • 90 days: Assign the debt to a collection agency.

You will have agreed to the terms and date of payment upon the presentation of your goods or services, but it’s important to ensure that your customer is sent a reminder to pay their bill. Not all your customers will be as organised and prompt in payment as you will be in running your business, and providing a reminder note will remind them.

Offering credit to customers is a calculated risk that must be carefully considered. Check the credentials of your potential customers before you enter into any delayed payment arrangements. This could be as simple as visiting their premises to verify theirs is a legitimate operation and to assess the risk. Customers should be aware that being offered credit is a privilege and not a right of doing business with you.

If a particular customer is repeatedly failing to pay bills on time you should renegotiate the terms of payment on future sales. This could involve limiting the length of time offered for payment or withholding your goods in future transactions until full payment is received.

For large credit offers, or offers that appear to be a high risk, you can contract a report from a credit reference agency to verify the financial security to the creditor and see if they have any history of problems making repayments to other credit providers.

In the event that a customer is late with a payment, there are several options that are available to chase the debt. If a customer fails to make payments by the agreed date then it may be necessary to introduce late penalties such as interest payments in order to persuade them to make an effort. Highlight the presence of interest charges on invoices for overdue debts, reminding your customer of the cost of failing to pay on time.

To chase debts, it is important to understand the motivations of the debtors who have failed to pay their bills. Why haven’t they paid? Are they simply negligent or are they actively attempting to avoid paying? A customer who is simply disorganised could be persuaded to make payments on time through your vigilance in reminding them of the debt. This could be as simple as calling or writing to the customer to remind them of the need for payment. You should never harass your customer for a payment; just make sure that they are aware of the debt and will move to rectify the situation.

Some customers will want to juggle their payments so that they pay all their outstanding bills on the same date. If this is the case make sure you note these customers and can accommodate their days of payment in the schedule of your business financing.

If a customer is making deliberate efforts to avoid you, and the debt, then you will need to become more active in securing the payment. The threat of a call or letter may not be a strong enough action to retrieve the payment. Visit your customer in person to collect the payment.

As an absolute last resort you can turn the collection of the debt over to a collection agency, although this can be an expensive process and is only recommended if an extremely large debt is neglected for longer than six months.



Dealing with common excuses for late payment

I’m too busy to deal with this now. Find a convenient time to discuss the debt and be sure to call them at this time; offer to call after hours, as there must be a time when they’ll be free.

We’ve just made payments; we don’t have another payment run until next month. Insist on a manual payment by cheque. Get the details of their payment dates and keep them for future reference. Be sure to hold them to these dates.

The cheque is in the mail. Allow three days for this cheque to arrive, then call again. Explain that you had been promised the cheque would arrive and ask for the cheque number. If they can’t give you this information then they are stalling.

Don’t be afraid to tackle big business. Increasingly small business is getting vigilant about making big business pay on time. Don’t be intimidated by the size of a business when you are chasing debts. They have signed to the same terms and conditions of payment as your other customers.

Make yourself clear. The most important consideration in credit control is clarity. The process should be clear to you and your customer in order for payment to run without problems. Your language needs to be firm, direct and as simple as possible.



Checklist for avoiding debtor problems:

  • Make sure your terms of credit are clearly explained to your customer.
  • Keep a record book detailing debts and due dates.
  • Have your customers agree in writing to all payment contracts.
  • Check on the customer’s line of credit.
  • Establish and maintain strict credit limits.
  • Keep in regular contact with your customers.
  • Refuse to provide further goods and services to non-payers.
  • Send bills with your products; don’t wait until the end of the month to send bills.



Business banking

Many of the basics of business banking will be familiar to you, including depositing cash and cheques, withdrawing money through an ATM or at a branch and regular statements to assist you in keeping track of your finances. Yet business banking also includes other merchant services that you will need to become accustomed to. Will you need branch, telephone, internet banking or a combination of these services?


Make note of the fees banks charge for providing their services; these fees and charges differ between banks. Charges could be ongoing account-keeping fees or individual charges for particular transactions. Review the terms of your banking at least yearly to be sure that you are receiving your expected interest rate and not being charged any additional fees.

Banks will make changes to their accounts, and you should be vigilant to ensure that you are aware of the current terms of your account.

Merchant services

If you intend to offer credit cards or eftpos as a payment option, then you will need to establish a merchant account, which will will involve a standard credit check by your bank provider. There will also be variable fees that will be determined by the price and volume of sales that are made through the merchant account system.

Changing banks

There is no reason to assume that your current banking situation is the best system available for your business. Be sure to shop around for the bank that best suits your needs.

When considering the merits of a new bank, make sure it won’t make the same failures as your current one. Call the banks on your short list to test the speed of their customer service. Speak with other customers of the bank. A recommendation from a friend will tell you a lot more about a bank’s service than its promotional material.

Things to consider when researching your new bank:

  • What rate of interest is paid and how does this compare with your current bank?
  • Are there penalties for overdrawing the account?
  • Does the account have additional fees if your money falls below a certain figure?
  • What are the charges for using the banks ATMs and for using other bank ATMs to withdraw money?
  • Where is the nearest branch located?
  • How many branches are in your area?

Reduce your banking costs:

  • Reduce the number of times you make pay-ins. Let cash and cheques accumulate before paying them in. That’s not to suggest that you leave your money lying around, but you may not need to bank every day – perhaps only every second or third day.
  • If you are likely to need cash the next day, save the effort and expense of depositing cash today.
  • Investigate using smaller banks – often they will offer more competitive rates on interest.
  • Use internet and phone banking as it’s invariably cheaper than visiting the bank branch.

Getting the most out of your credit card

Negotiate and cut your credit card charges and you can save money. The cost of starting your business is likely to place pressure on your business’s credit card, but there’s no reason to let this become a significant financial burden.

If you have a strong history as a reliable customer with a particular bank you can try to use that as a positive in negotiating better terms for your credit expenses.

  • Don’t automatically assume that your current bank will provide the best products for your business.
  • Demand better rates as recognition of your record as a trusted customer; use your loyalty to bargain for a better deal.
  • Seek information from other banking services to determine the most competitive credit rate that is available to your business.
  • Research the charges of a number of competing banks to find the best credit deals.

If another bank offers a better deal than your current provider, then it would be reasonable to expect them to offer a reduction in fees or charges to at least match the competing offer. If not, consider moving to another bank.

But be serious about following through with any threat to take your business to another provider. By actually taking the steps towards closing an account, you may be able to make your bank take the potential loss of your business more seriously.

Keep close track of your credit spending and ensure that you avoid interest and late fees by paying your bills as they are due. You will expect your creditors to pay when they have promised and should seek to follow this same principle in your own debt repayments.

Create a plan of repayments to pay off your credit. If you are planning to use credit to fuel the startup of your business, then credit repayments have to be included your financial planning. Be sure to budget to pay off at least your minimum monthly repayments.



Accounting matters

Employ an accountant to avoid some of the hassle of setting up your business’s financial system. You may feel that your business is not initially large enough to justify hiring an accountant, but a good accountant will not only be able to calculate your finances but also offer your business a wide array of financial advice. In the set up stage of your business, an accountant can be useful in initialising your accounts book, providing an example that you can follow in daily operation. It will prove to be far easier and cheaper to have a solid accounting process in place from the time you open your doors for business.

Using an accountant in the early stages of your start-up will establish a relationship that will be beneficial through the life of your business. An accountancy service will be able to navigate you through the difficulties of understanding tax laws, compliance with the GST and other considerations. By hiring an accountant to focus on setting up the financial record keeping framework for the business you can focus your attention and energy on other aspects of the start-up process.

You will need to maintain records of all transactions. Record books you should keep include:

  • A cash receipt book.
  • A cash payment book.
  • Bank statements and bank reconciliation.
  • Lists of debtors and creditors.
  • Petty cash.
  • Wages.
  • A sales journal to track the rate at which your products are selling.

Accountant vs bookkeeper

If the burden of maintaining your bookkeeping and records becomes too heavy a distraction from the other work of your business, it is advisable to hire someone to handle this work. But is this the duty of an accountant or bookkeeper?

A bookkeeper simply maintains the ledger of your business transactions; simple tallying work that you could do yourself but have become too busy to handle.

The services of an accountant are more specialised and are accordingly most expensive. Your accountant will be a vital asset in filing your tax return, but you should also seek their services to advise you on issues of financial management.

Hiring an accountant

Be sure to employ an accountant who is familiar with your business’s industry. There are issues that will be particular to your industry and your accountant should be able to navigate your business through these intricacies. Equally you should make sure that your accountant understands your business and your objectives. Without knowing the business they will be unable to give you the level of service you require. Your accountant should be considered a consultant to your business.


Your bookkeeping system should allow you to know at a glance the status of your debts and credits. To maintain a record of your business’s finances, you will need to set-up and maintain an accurate bookkeeping system. You can do this by working with a single or double entry system of accounting.

A single entry system contains a list of only the bare essentials of your business transactions, simply adding credits and subtracting debits in a single column. This method is acceptable for only the smallest of businesses dealing in a limited number of transactions.

A double entry system is more detailed and is a more effective system for most businesses. In double-entry accounting every transaction is recorded twice, as a debit and as a credit. This system is less susceptible to fraud and human error as the total of the debit and credit values must always be equal.



Goods and services tax

How do I know if I have to charge GST?

If your business has an annual turnover of more than $50,000, then you will need to register your business for the goods and services tax (GST). Your business will have to take the GST into account and your accounting book will need to include a column for calculation of GST.

The GST is a flat 10% tax on most goods and services offered in Australia and you might need to include this in the price of the goods and services that your business will be offering. There are exemptions.

Australian business number

To register for the GST you will also need to contact the tax office to be issued an Australian business number (ABN). If you are supplying goods or services, you will need to be able to quote an ABN so that other businesses do not withhold tax at the top marginal rate when they pay you.

If you are operating your business as a sole trader you can simply use your existing tax file number for your business. However businesses that are operating as partnerships, companies or trusts will require a separate tax file number to be used purely for the business.

To claim a GST credit you must be using the taxed item to enable you to make taxable sales. If you purchase an item for both private and business use, you may only claim a GST credit for the portion that is use for business. For instance if you buy a computer, for 40% personal use and 60% business use, with a GST charge of $400, then you can claim credit for 60% of the GST cost.

You are required to keep accurate records of the GST and GST credit accumulated through your business operations and report these figures to the tax office each quarter. This is the part of the BAS (business activity statement).



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