The Importance of Having Sensible Payment Policies

Some business owners have never thought about having a payment policy. Deadlines on bills, wages and taxes come and go; amounts due get paid as soon as possible. When available cash doesn’t cover it, the deadlines slip. 

But this can be expensive and make the situation worse. Penalties for late tax payments can be severe. If you don’t pay your employees on time, you won’t keep them long and morale and production will slump. If you don’t pay your suppliers on time, they can hit you with late payment interest and will be far less happy about doing business with you. 

A Policy for Commodity Suppliers 

A payment policy on suppliers should start at the beginning of your relationship. You’ll make choices based on their reputation for reliability and quality, how much they charge and their normal terms for payment. If the latter is likely to make problems for you, you may be able to negotiate. This will be easier if they know you have lots of choice among their competitors, and if you have set a general policy for payment in, say, 30 days from date of invoice. 

Don’t forget to communicate your payment policies to your outsourced bookkeepers, then they can check that they are being adhered to and are working well. Another option for a general policy is to set a monthly payment date. It could be, for example, the nearest Friday to the 15^th of the month, or the second or third Wednesday for paying all invoices dated in the previous month. For some supplies this could give you an extra week or two to pay, and the suppliers will know that, if they don’t invoice you before the end of the month, they’ll have to wait longer for the payment. 

As long as your suppliers have been made aware and agreed to your terms, they will know when to expect your cash and will not hassle you beforehand. When you normally pay up as expected and work at maintaining good working relationships with them, if you run into occasional cash flow problems, as long as you warn them, most suppliers will be sympathetic and give you some leeway. 

A Policy for Vital Payments 

There are bound to be some creditors who won’t play ball with your general policy and could make things difficult for you if you don’t comply with their terms. You need to identify these for priority payments. You don’t want to your landlord to start eviction proceedings on non-payment of rent, or the local authority to sue you for non-payment of business rates. Utilities providers are important too or services could be cut off. Your bookkeepers can help you make sure all these payments are made on time, as well as all the different tax payments that have different deadlines month by month and year by year.

Do Not Allow Your Systems to Let you Down

According to Hartmut Wagner, MD of Cloud Solutions Exact, “many SMEs who are eager to grow are not doing themselves any favours, particularly with so many of them expressing concern over their cash-flow.” He was referring to the results of an online survey, commissioned by Exact from Atomik Research, of 450 UK SMEs. It found that many of these companies were losing out big time through poor internal systems and procedures.  

Staggering Loss Potential 

About a quarter of respondents did not feel completely in control of their business finances. Some even said that they had omitted to send out invoices. If the potential losses were replicated across the 4.8 million SMEs noted in the Business Population Estimates for the UK and Regions 2012 report of the Department for Business Innovation & Skills, they could add up to over £3.7 billion.  

With concerns over cash flow and business finance being the second biggest stress factor for entrepreneurs, the first being getting enough business, losing out on revenue because of poor invoicing procedure is the last thing they need.

Use Financial Support Professionals Wisely 

The survey also looked at the relationship between the companies and their accountants who, it was reported, were the most trusted business advisers. But in the nature of the relationships, communication between them was irregular and sporadic, therefore best use of their professional skills was not being made. 

If you have outsourced bookkeepers, they are not likely to allow you to forget to send an invoice, as long as they know about the service or product that has been supplied. An objective viewpoint is often useful when you are so involved that it’s not easy to see the wood for the trees. When you have a good working relationship with your bookkeepers and are in regular communication with them, they can also point out inadequate procedures and potential problems, and help to prevent them. 

Good Communication Brings Rewards

The best bookkeepers can often save you the expense of involving your accountant, but will also know when that kind of professional expertise is essential. They will often have come across similar issues and difficulties to yours among other clients, and seen how they have been solved. You can benefit from their experience as long as you allow free communication and are prepared to accept their straightforward and down to earth advice. Make sure you stay in control of your business finances by discussing your systems and procedures with your outsourced bookkeepers and using them wisely.

Pension Auto-Enrolment Reminder

Pension auto-enrolment started a year ago and over 1,600,000 have been enrolled, with about one in ten opted out. If you have eligible employees, by now you should be well into your planning for this in your business.  

Who Will Qualify? 

To be eligible, employees should be at least 22 years of age and under the State Pension age. They should also be earning more than £9,440 a year from your employment working in the UK. This figure is the current level of the income tax personal allowance and may be subject to change. Other staff may be eligible to opt-in or to join. All businesses which, according to HMRC, had eligible employees at April 2012 have been allocated staging dates by which they must comply. These dates depend on the size of their payroll, but all employees should have been auto-enrolled by 2019. If you don’t know your staging you can find it by entering your PAYE number on the Pensions Regulator website. 

Within four months of your staging date, you must have enrolled your eligible jobholders and registered your scheme online at autoenrol.tpr.gov.uk. The Pensions Regulator website gives a detailed list of all the information required at the time. You must also inform other staff of their options to opt-in or join.  

Even if you currently have no eligible employees to enrol, if you have been given a staging date, you must register. That means you must have a qualifying pension scheme in place. The National Employment Savings Trust has a public service obligation which means it must accept all applications from employers, but many other pension providers will also qualify. To save yourself a lot of time and aggravation, you could ask your outsourced bookkeepers for some help with all this.  

Budgeting for the Extra Expenses 

Once you have completed your enrolments you have to pay at least the minimum contributions, which will start at 1% of the employee’s wage and increase over time to 3%. Depending on the number of employees, this could add up to a significant extra financial burden, so it is important to budget for it, and for all the other associated administrative expenses. Of course the employees’ contributions will have to be included as deductions on your payroll. It will be really important to have up to date software for payroll administration, and to have the right systems and procedures in place for these new regulations. Again you may need to look to your outsourced bookkeepers for assistance. 

Make sure you don’t fall foul of the Pensions Regulator which has already opened investigations into possible non-compliance in over 80 cases, has been issuing warning notices and its first non-compliance notification over a failure to register. The penalties imposed can be very costly to those businesses concerned.