Nichola Caddy

Nichola Caddy

Who is doing the invoicing?

Getting paid for the job you have done is your customer appreciating the work you have done, getting paid quickly by your customer is the ultimate compliment.
So how do you make sure you get paid quickly? 

  1. Make sure you do a good job
  2. Communicate upfront with your customer before any work has been done exactly what they should expect.
  3. Have a contract with all your Terms and Conditions signed by them
  4. Invoice immediately, that is straight after the job is completed

I can’t stress how important it is to invoice straight away.

Therefore, you need to have a system for this that is easy to use and a reliable person to use the system.

Who in your business is responsible for making up the invoices? This is one area many businesses fall down, they take too long to send out the invoice, usually because it left to the wrong person to do it.

Make sure you have an automated way to create invoices and set aside time each day to do it, or have someone do this for you, a freelance bookkeeper may be a great choice for this role or if you are doing a lot of work you could employ a bookkeeper. Have them send the invoice immediately and then follow up to ensure the customer received it?

These elements help to build trust.

Most accounting software has a numbering system, use this wisely and code your customers, also put this on the invoice. Little things like these make it known to your customers that you are organised and know what you are doing. 

Make sure your invoice is well itemised, put everything on it, you can also attach a copy of the quote that was provided (you did provide a quoted didn’t you?) Make reference to the quote on your invoice.
Customers don’t like surprises and your invoice is not the place for them, don’t use it as a way to add extra charges that have not been agreed upon.

Honestly, this is one massive problem for us as debt collectors, clients doing extra work that has not been agreed to, it is one of the biggest causes of disputed debts resulting in non-payment. Many times we have seen a customer get their back up and refuse to pay the whole invoice because one element was added that wasn’t agreed to before the job was started.

Check for errors before you hit send, errors are another way to delay payment.

On your invoice, have easy payment options and give lots of choices. How your customers pay you may depend on the type of customer they are, is it business to business or business to consumer?

Consumers are more likely to click and pay if the option is on the invoice when sent electronically, where a business may be more likely have a formal method, like online banking. But don’t guess give lots of option no matter who your customers are.

  1. Online banking
  2. Paypal (I love PayPal it so easy and you have record of all your transactions)
  3. Eway payment gateway is a good credit card option

In summary:

Make sure invoicing is some one’s job if you are the business owner preferably not yours. Don’t put any surprises on your invoices. Check for errors before sending and give plenty of payment options.

Who is paying the invoice?
Often an invoice is disputed because it has been sent to the wrong person or written out to the wrong entity.
Make sure the entity you are dealing with is an enforceable entity, we often see invoices made out to entities that cannot be sued.

As you know, invoicing is one of the most important elements for getting paid for the work you have done, making it important that you are issuing them to an enforceable entity.
A common mistake many businesses make is issuing an invoice to a business name.
Now, I can hear you saying 'what’s wrong with that?'.

Well a business name is not a legal entity, ASIC Manages business names and when you search on their website it applies ABN numbers to them, but the ABN belongs to the legal entity that owns the business name. This may be a PTY LTD Company or an individual, it may even be an association, no matter what it will be owned by a legal entity.
You need to think of the business name as an alias or a nickname.

On your contracts and invoices make sure you are addressing the full legal entity, plus the names of the directors, trustees, and people who the entity is associated.

Ok, now I have mentioned trustees, trusts are another problem and are set up for various reasons. The important thing to realise here is that a trust is also not a legal entity and again like a business name they cannot be sued. It is the trustees that are the legal entity and their names are what must be on your contracts and invoices.

This is another common problem for businesses, in particular for accountants as they may be preparing taxation, financial planning and various services for trust, super funds or businesses and invoicing to the same, however again none of these are enforceable entities and cannot be sued, ensure your contracts and invoices are contracted to the correct entity. When you are working for these types of entities you still must invoice the original owner of the entities.

I know this is a big problem when it comes to enforcing payment, so ensure you are billing, invoicing and signing up a legal entity that is enforceable.
The simple way to avoid this is to check on ASICs website that the name on your contract is a legal entity before going ahead with any work and then invoice that entity.

3 common mistake businesses make with invoicing:

  1. They don’t check ABN numbers or the entity on ASIC
  2. The invoices don’t match the contracted entity
  3. There is no process for updating information on a regular basis.

Case study:
We recently had a client come to us who was a graphic designer and printing firm, they had a client sign up for a job, they did a job for them under the name on the contract and that was all good.

The same person came back and asked for more work to be done, for two additional jobs but they were for different companies and they asked to have the invoices made out to the separate companies. The graphic design and printing company never got them to complete new contracts for the two additional companies. When it came time to pay there was an argument over who was being billed.

They went to court and because there was no contract he only got a portion of his money back and that was from the entity on his contract. It just goes to show that when you get a job, double check who is paying the bill.

Monday, 10 July 2017 16:53

What is Insolvency

This may sound like a pretty simple question, but honestly, it is a very confusing event when this happens to your debtor.

Insolvency refers to a company that can’t pay its debts when they fall due.

It is an offense of the Corporation Act to run a company that is not solvent.
There are three procedures that are generally taken out when a company becomes insolvent.

These procedures may be self-imposed or imposed by external forces. The following refers only to a company.

1. Voluntary Administration: This is when either the directors or a major creditor appoints an external administrator to sort out the affairs of the company. An administrator will make recommendations to creditors in regards to the financial status of the company and work towards a resolution. Being under administration is not the end of the company. At this stage, they are brought in to assist in getting the company back on track. The outcome may be that the company is handed back to the directors, or the company may have no option but to enter liquidation, or the company may enter into a Deed of Company Arrangement with the creditors.

While a company is under administration unsecured creditors cannot commence or continue legal action against the company. If there are lease agreements for machinery or equipment that are unsecured with the company these will be ceased by the administrators and cannot be recovered. A court application to put the company into liquidation cannot be commenced. If a creditor has a personal or directors guarantee they cannot act on this without the court's permission.
The role of the administrator is to give the company breathing space while the affairs of the company are sorted out.

2. Liquidation: This is the orderly winding up of a company, whereby decisions are made as to what will happen to the company’s assets, the distribution of proceeds from the sale of assets, and the cessation or sale of the company. The Liquidator’s role is to provide a professional, orderly and fair manner of winding up the company.

After a company goes into liquidation unsecured creditors can no longer continue or commence legal action against the company unless they have permission from the court. If the liquidator suspects the company directors have acted illegally they can report this to ASIC for investigation.

A liquidator may investigate all payments made to creditors in the previous six months of being appointed to determine if any creditor has received unfair payments. If they believe this is the case then a creditor may be required to return payments to the company to be fairly distributed. Unfair payments to creditors are deemed so if the creditor was aware the company was trading insolvent at the time of the payment, putting them at an unfair advantage to other creditors.

3. Receivership: This is when a secured creditor appoints a receiver to the company to sell or liquidate assets for the sole purpose of paying out the secured debt in their charge. A receivership only deals with their debt. Once their debt is paid the receivers hand back the company to the directors. Once again if the receivers believe there has been an offense committed by the company they are required to report this to ASIC.

The receivers are responsible for ensuring that any assets are sold for their market value as to not disadvantage the company and any creditors.

It is possible that a company can be in receivership and under administration at the same time.

An unsecured creditor can commence a legal action or continue legal action against a company when it is in receivership. This means that an unsecured creditor can commence winding up procedures and have the company put into liquidation for unpaid debts through the courts.

In the process of insolvency, a Deed of Company Arrangements may be entered into. This is a binding agreement between the company and its creditors as to how the proceeds of the company will be distributed. The aim of this is to maximise the company’s chances of trading out of insolvency, to enable a better outcome for creditors and to prevent immediate winding up procedures.

When a person becomes insolvent the procedure is generally Bankruptcy.

 

When it comes to Tax Invoices, as a business you have requirements that must be met. To start with if you are registered for GST your invoice should be referred to as a Tax Invoice if you are not registered it is referred to as an invoice.
No matter what you call it, there is necessary information that needs to be on your invoice to meet the requirements of the ATO.
If you're registered for GST, your tax invoices should contain the following information:

  • your business name
  • your Australian business number (ABN)
  • the words ‘tax invoice’
  • an invoice number
  • the amount of the sale
  • the amount of GST (this can be shown separately for each item or, if the GST to be paid is exactly one-eleventh of the total price, as a statement such as 'total price includes GST')
  • not matter what make sure you GST component is clear on your invoice as in my time as a debt collector we have seen ridiculous disputes due to GST not being clear on invoices
  • nature of the goods or services sold
  • date of sale
  • date of the document
  • the purchaser’s identity or ABN (for invoices over $1,000). Not a requirement of the ATO but your invoices should include your payment terms and conditions and a variety of payment methods.

If you are not registered for GST then your invoice is not a tax invoice it is just an invoice, it is important that you do not collect GST if you are not registered.

Nor should you claim GST from a supplier who is not registered for GST.

Your invoices are a critical part of the sales process and before you can start billing a customer you need to supply them with an itemised invoice.

If you follow the steps above and ensure all the data is on your invoice you eliminate an opportunity for customers to complain.

Most business these days have access to some sort of accounting package, it is important that you are set up to quickly and easily provide invoices to your customers.

I have always been a big advocate of having a bookkeeper, this makes life easy and you are able to stay focused on your tasks whilst your paperwork is being taken care of.

It is always a good idea to contact your customers soon after they have purchased from you and after you have sent your invoice, this is a great way to circumvent any disputes that may arise after service.

If your invoice is over $75.00 you are obligated to give your customer a receipt of proof of purchase.

Further to this you must keep good records and be able to easily access them in case a customer asks for a new copy.

Often this is another area that causes problems for customers who have to keep asking for invoices.Under tax law, the ATO requires that your records:

  1. explain all transactions
  2. be in writing
  3. be in English be kept for five years (although some records need to be kept longer).

 Keeping good records helps your business run smoothly and enables you to keep an eye on your cash flow.

When a customer goes into receivership or administration, or even just has another larger creditor pursuing them for money owed. SME's like yourself can often find themselves at the end of a long queue waiting to be paid.

Up until 2009, there was little that SMEs could do to protect their interests, that all changed with the introduction of the Commonwealth Government’s Personal Property Securities Register (PPSR). With the PPSR, SMEs can register their interest in their stock, or money owed, or even equipment on lease, to prevent other creditors from taking control and selling the goods.

What is a creditor and what does it mean to be secured?
A creditor is a person or company to whom money is owing. In the finance world, creditors fall into one of two categories, secured and unsecured. A secured creditor is someone like the banks and loan providers; when you get finance from a bank or loan provider they are a secured creditor to you and you are the debtor.

Secured creditors, who are usually better resourced, are usually at the front of the queue and take the first, and often the biggest slice of the pie, often leaving just crumbs on the table, or nothing at all, for the smaller unsecured creditors at the back of the queue.

Even worse, administrators and secured creditors often take possession of unpaid stock that smaller businesses have provided and sell that to recover their losses. If you are not utilising the PPSR then you are not a secured creditor. There are a few boxes to tick before you can start using the PPSR, you need to have some form of agreement in place between yourself and your customer. It is really important to cross your Ts and dot your is, otherwise, a registration may be void and would not protect your assets.

The PPSA is a government initiative created to even the playing field for businesses in comparison to financial institutions throughout Australia. Financial institutions have always had the privilege of being secured creditors in the event that a company, business or individual is unable to meet its financial commitments.

When you are taking on new customers are you setting the standard, and do they know your rules and how you intend to provide your goods and or services?

A lot of businesses do not actually know who they dealing with, or even if they have the ability to pay you. The responsibility of risk assessment and due diligence can often fall solely onto the business owner or not at all.

Due diligence is what the lawyers use to say, ‘have you done what you should be doing to avoid breaking the law’. Risk assessment is when you are conducting checks and assessing your customer to get to know your customer and get an idea of their financial position. These two work hand in hand in protecting your business.

At BCA Debt the onboarding process consists of a simple audit to ensure that we can actually help the customer and we won’t just be taking their money. After an audit, we make the decision to take on the customer, or not, and if the customer makes the decision to use our services, the customer must complete our registration form and agree to our terms of trade. This lays down the ground rules for our clients, from day one we are ensuring that everyone is on the same page and understands one another's role in us providing the services. Our due diligence and risk assessment rely on our policies and procedures.

When a customer is not on boarded properly it has the potential to create issues and disputes between parties, sometimes those issues won't happen until further down the track. Having iron-clad policies and procedures in place for onboarding is what is going to avoid these issues.

Furthermore, if you are providing services and or goods on a credit basis, who are you providing credit to? Carrying out risk assessment measures in regards to supplying credit is crucial to protecting your cash flow. A risk assessment will include things like checking that your customers are who they say they are, and they have the ability to pay. There are a few hoops to jump through before you can conduct thorough credit checks on companies and their directors, doing these checks without the proper provisions in place may incur hefty fines if you are found to be in breach of the privacy act.

Don’t let people slip through the cracks in your business, using policies and procedures to uphold your business is key to protecting it. When you have clear terms of trade and include a credit application when necessary you are not only laying down the ground rules you are showing your customers that you take your credit supply seriously and you are operating your business at a gold standard.

Anytime your business does a job on an invoice for goods or services you provide to customers and they take their time in paying you, they effectively have your money in their bank account.

How often have you been paying your bills and leave the suppliers who don’t hassle you to last? Let's face it it’s the squeaky wheel that gets oiled first, I know because I have done this myself.

It took time for me to truly learn this lesson because for the first few years of running my business I ran the books myself because I was so busy being everything to my business I really dropped the ball and let customers get away with not paying on time.

Once I realised I couldn’t do all the tasks and employed someone to help me, I worked out how much money my business had sitting in other people’s bank accounts. Honestly, the amount shocked me.

So my accounts manager and I put together a plan to retrain our clients and get the money flowing into our bank account a lot quicker.

We became the squeaky wheel, we followed a process and made sure we became first in line to be paid and not the supplier that is left last in the payment chain. At first, it took a lot of persistence to get clients to pay on time, we became wise to the ones who took their time, it became a weekly task to make sure they were followed up on.

I started to suspect that not all our clients were as flush with money as we thought and this gave us a heads up to not allow them to go over our 14-day payment terms. We had about six clients in this position and we gave them all six months to catch up on the old invoices and made sure any current ones were paid within our terms.

To start, this took a lot of time and effort, the accounts manager had to be tough and ruthless, but now these clients pay us within our terms. We have kept to our word and don’t let clients go over our terms anymore.

My husband Lindsey got really upset with one client who was complaining to him that our accounts manager was on his back too much, his reply was if you paid on time I wouldn’t have to pay someone to be on your back.

It can seem ridiculous that we have to pay someone to make sure our clients pay us but that's the reality of business. Why can’t our clients just pay on time?! One thing I do know is that without our dedicated accounts manager looking after my business our cash flow would severely suffer.

We all know how important cash flow is, my dear dad used to always say to me ‘Nichola cash flow is king’.

Cash flow is the lifeblood of business so it’s important that your money is returned to your account as quickly and with as little effort from you as possible. If you don't have a person in your business dedicated to taking care of your cash flow, what steps can you take today to fill that role? And if you do have such a role already, do they have clear guidelines on when and how to follow up effectively with clients to protect your cash flow?

Over the years this has been a contentious issue here at BCA Debt.  The reason why is because when a business charges a customer for a missed appointment, they usually refuse to pay and it ends up in all sorts of arguments.

Understandably if you are running a business and you set aside time for a customer or patient for a consultation and they do not turn up you have lost time and money. 

However putting the boot on the other foot, a customer or patient who does not show up for an appointment has not received the services but is now being charged.  They tend to become quite irate at the business for charging them and saying that a debt is due for collection.

The only way to solve this problem is to be very clear with all customers when they make appointments that you have a policy on charging for missed appointments.  This policy then needs to be a clause in your terms and conditions and should outline exactly what the procedure is if a customer misses an appointment.

According to the Department of Commerce (Fair Trading), their directive is that customers must be told at the time of booking the appointment they will be charged if they miss it and what the cost will be.  They also state that it should be a fair and reasonable fee along with giving the customer the opportunity to make another appointment without being charged.

Make it policy in your business that when an appointment is made that your staff speak directly to the person whom the appointment is for, giving them the information verbally, then ensuring they understand.

It is also very important the on registration all customers have a copy of your terms and conditions and that this is signed.

Things to be aware of:

  1. If your business makes appointments on behalf of customers from a referral, ensure that you speak directly to the customer and explain the policy.
  2. When sending SMS reminders, ensure that the SMS has clear instructions on how to confirm the appointment and that there is a missed appointment policy.
  3. Check to see if your SMS system has the facility for customers to reply to it.  If not this can be very confusing.  Ensure step 2 is in place.
  4. It is possibly a better policy to have a representative to call customers the day before to confirm, particularly if your SMS facility has no reply capability.

Let’s face it one of the first things you think of when you go into business is not who is going to follow up on late payers and manage the list of debtors. The reality is that this role is largely one of the most important and usually ends up being the last thing on the list and mostly ends up on the list because there is a problem.

It may not be so bad if you only have a few companies that are late payers, but I know in my business that is not the case.

Bizarrely it is not our debt collection client but the work we do on behalf of other debt collectors that are the late payers. We have a dedicated person whose role is to follow up on these clients. It is tedious that we have to have a dedicated person doing this role, why can’t our clients just pay on time, one thing I do know is that without that person our cash flow would severely suffer.

We all know how important cash flow is, my dear dad used to always say to me ‘Nichola cash flow is king’.

It makes me sad when we get clients who are suffering from cash flow issues, which is compounded by high volume clients paying late. The problem is we get too emotionally involved when it comes to asking our big clients for the money, we get scared we will lose them as a client.

The following up on money should be done by someone who is not emotionally connected to the outcome and all they are there to do is get the money back.

If you don't have a person in your business dedicated to chasing up aged debtors, what steps can you take today to fill that role? And if you do have such a role already, do they have clear guidelines on when and how to follow up effectively with clients to protect your cash flow?

We'll cover those issues in upcoming emails.

?rel=0

Page 2 of 5

Login Form