Reprieve for Cheques

So after all the head scratching about how to replace payments by cheque, we're not going to lose them after all. They had been due to be phased out completely by 2018, but no-one has been able to come up with a viable alternative, so the decision has been reversed.

Reasons for Phasing Out Cheques

The original proposals to stop them had been made because the number of payments by cheque has been dropping significantly since the early 1990s, culminating in a reduction by nearly half over the last five years. The widespread use of other methods of payment such as direct debits, BACS or CHAPs, or plastic cards in person or on the phone or internet has also saved the expense and hassle of preparing, signing and sending cheques by post.

Reasons for Not Phasing Them out

However, last month the Payments Council announced that the planned closing of cheque clearing has been cancelled. This was agreed, their announcement said, after they had consulted with over 600 stakeholder groups. Also, its members had been unable to come up with the paper based solution to using cheques, which would be essential to some sectors of the community including some small businesses. And we probably all know how much opposition there has been from members of the public and the MPs representing them, as well as charities which often receive donations by cheque.

Cheques are More Risky Now

While 2018 is still a way off, and many small businesses have not yet started to put other payment options in place, some retailers have already stopped accepting cheques. Will they have to do a U-turn? The problem is that cheques no longer have a guarantee, letting the banks off the hook if they are fraudulent.

Anyone who exchanges goods or services for a cheque from someone they don't know and trust is asking for trouble. So people who want to continue using them are still likely to find it difficult to get them accepted now that the cheque guarantee card can no longer be used.

There may not be much risk in continuing to accept cheques from long-term and trusted customers, or those you have for which you have completed credit checks. It's a different matter though, if you are dealing with individuals on a one-off basis, and have no way of knowing if their cheques are genuine.

Your outsourced bookkeepers are well aware of the problems and know how their other clients are dealing with them. Why not ask them for advice if you are unsure of anything?

Can You Pay Your Bills on Time?

A major problem for small businesses is late payments. While individuals usually pay on time, the business to business sector really suffers here. Those who supply goods or services to major companies frequently experience long delays in getting paid. Some have to resort to factoring, which incurs more expense for them. It seems that many larger organisations follow their own terms for payment, completely ignoring the terms on invoices they receive.

Results of Late Payment Receipts

It's a vicious circle, because if you don't get paid by your customers, you have problems paying your own suppliers. You can charge interest for late payments but most small businesses are reluctant to do so in case the customer decides to go elsewhere and they lose future business.

Late payments can cause serious problems for small businesses. Some may not even be able to pay their staff if their cash flow projections are nullified by not receiving expected income.

Sometimes accepting what appears to be lucrative business can make a small business vulnerable. For example, a provider of cross border deliveries from the UK to Europe has significant expenses in performing the service. The cost of fuel, ferry crossings and overnight stays can be crippling if the company has to wait 90 days or more for payment.

Your Legal Rights

Legislation to encourage prompt payment now includes an entitlement to reasonable compensation for debt recovery costs. The calculation of interest entitlement was simplified in 2002. It is now based on a reference rate, which is currently the Bank of England base rate as at 30^th June, plus 8%. This means that the maximum that can be charged from the present to December 31^st 2011 is 8.5% of the debt per year, so you just have to multiply that figure by the number of days the payment is late and then divide by 365. The bank's base rate at December 31st will become the new reference rate for the next six months.

What to do About it

If you are concerned about this affecting your business, you need to review your credit control practices. Outsourced bookkeepers can help with this if you don't have the time or the staff to cover it. If you don't want to charge the statutory interest you're entitled to, you could offer a discount for prompt payment, which might be a cheaper option than factoring or waiting for those late payers. Your outsourced bookkeepers might come up with other ideas too. Don't forget to make full use of their experience and expertise.

After the August Riot Mayhem

Most businesses in the areas of the recent rioting have been affected in some way. Even those serving the public on the fringes lost revenue either because people stayed away thinking it too risky to come there, or because management decided to close much earlier than usual and get their staff out of the area before nightfall.

Of those small businesses that were damaged by rioters, sadly many will not survive. But there is some help out there for those determined to struggle on.

Claiming for Damage and Loss

The Riot Damages Act of 1886 is still in force, which means that businesses can claim for damage to goods and premises or loss of stock by looting. Unfortunately, the form to be used to make claims is an antique, but you do have six weeks to submit it. As long as the police agree that a riot was taking place in your area at the time, your claim should be honoured, though it could take some time for the cash to arrive. You might also benefit from a suspension of council tax and business rates for a while.

Claiming on Insurance Policies

Support is available from the Forum of Private Business if you aren't sure whether your insurance will cover you. Whether or not you are a member, its underwriters will assess your cover and give you free advice if you call them on 0845 130 1722.

HMRC Helpline

HM Revenue and Customs has set up a telephone helpline for people and businesses affected by the riots. If you are going to have trouble meeting your tax commitments or you have lost your tax records in the mayhem, call it on 0845 3661207 any day between 8 am and 8 pm. The department has pledged to be sympathetic with difficulties, not to impose surcharges and to review whether penalties should be imposed.

Entrepreneurs Help Each Other

Various other types of support have been offered by businesses keen to help. Social media sites are full of such offers, for example:

· @riotcleanup is a new twitter account where people can offer assistance and publicise cleaning up events

· Workspace Group, a London commercial property company, is offering temporary storage and work stations for those in need

· Stockline Ltd can help with high quality refurbishment where needed for damaged property

· Lockaid has country wide branches that can help with general security, including boarding up or repairing windows.

It's good to see the business community pulling together like this. If you are among the lucky ones that haven't been adversely affected, perhaps there is something you could offer.

What's Most Important – Profit or Cash?

It's always good to know you are making a healthy profit. Regular positive profit and loss reports can give you confidence that your business is developing well. But profitable companies have been known to have cash flow problems and even to go under because of them.

If you are a regular reader of these pages, you'll have seen plenty of articles here about cash flow before. As experienced bookkeepers, we know just how important it is to keep on top of your cash, and we can't stress this often enough.

A Hypothetical Cash Flow Problem

Suppose you received a new large order for multiples of a product and had to take on extra staff and buy in extra materials to fulfil it. All your efforts go into getting it right and producing what is wanted on time. If you are a service company, rather than sourcing more materials, you might have to pull in people from other jobs to form the perfect team for the new client.

You lose focus on your regular customers, the rest of your order book, and on what's happening to your cash. Suddenly you hear from your bank that you've reached the limit of your overdraft. How long will it be before you can expect to be paid for the new work on which you have been spending most of your resources? How are you going to pay your staff and your suppliers?

The hypothetical example above shows how easily, and quickly, it could be to fall by the wayside if you don't look after your cash. It doesn't matter how much profit you've made on paper if you don't have the cash to go forward.

Keep Your Eye on the Bigger Picture

Make time for regular meetings with your bookkeeping staff or outsourced service providers. The latter can help you to look at the implications of the reports they produce for you. Do you need to be chasing up debtors or cutting costs in other areas?

They could also demonstrate trends such as dwindling repeat orders from long term customers. Then you can look at your customer service, see if there have been any problems and try to put them right. Or you can look for shifts in the market where you need to adjust your strategy. Perhaps there are new products out there that are outshining yours, either because of genuine improvements or clever marketing tactics. Your business will need to respond and remain dynamic to continue to make a profit and develop.

Do you Have a Good Accountant?

Do you have an accountant, and is your accountant good for your business? If you haven't appointed one yet, how will you know when you've found the right one?

Just as in all walks of life, accountants can be excellent, or not worth having. If they are qualified members of one of the professional organisations, they will at least be competent in the basics. If they are not qualified, it doesn't necessarily mean they are no good. Many excellent accountants have plenty of experience but no qualifications.

What Makes the Difference?

What you really want, in addition to the basic competencies, is someone with knowledge and experience of your type of business, and the markets in which you compete. But you don't want them to have any conflicts of interest. It's not a good idea to have the same accountant as your biggest rival, for example.

How to Find the Right Accountant

Many people feel more confident if they choose someone who has been recommended. But you still need to know the person has the right kind of experience for your circumstances. Ask probing questions, then listen carefully and respond to the answers.

If you want to be sure of having a qualified accountant, you can check the membership lists of the Institute of Chartered Accountants of England and Wales, and the Association of Chartered Certified Accountants (ACCA). Choosing a suitable member gives you the comfort of knowing they will undertake ongoing training to keep up to date, and will probably have professional indemnity insurance. It also means you have a complaints procedure to follow, if you are not happy with them.

Shortlist two or three and arrange to meet them. If the accountant has lots of questions for you, it probably means he or she is careful to find suitable clients and will do a good job for you. Be truthful in your answers. If there are problems in the business finances or in your background, they need to be aired up front.

Don't forget to discuss your choices with your outsourced bookkeepers. They will have experience of working with accountants, and may have valuable input that will help with your decision making.

Nurture the Working Relationship

When you have found an accountant with the right experience and expertise, who will care about your business and be keen to help it succeed, you should be sure to forge and maintain a good working relationship. While you don't want to get too familiar with your accountant, you do want to maintain mutual respect and strike the right balance between professionalism and friendliness.

Compliance With the Bribery Act 2010

On July 1^st, the Bribery Act came into force. Do you know what this means for you and your company? If not, you need to get familiar with it, because the penalties for non-compliance can be crippling fines and even imprisonment if the offence is serious enough.

Policies and Procedures

If you are a small business with employees, you need an anti-bribery policy and procedures in place for the prevention of anything that could be construed as bribery. Your staff should be briefed and warned that offences will not be tolerated. You need to keep records of any occurrences or potential risks.

Having a written log is your proof that you are taking the bribery laws seriously and trying to comply with the Act. Another good idea is to hold training sessions, and have a training manual and materials that can be available for inspection.

Put incident reports and reviews of your anti-bribery policies and procedures on the agendas of board or senior management meetings, so that discussions can be minuted. These minutes will be further proof of your commitment to the new legislation.

Failing to Prevent an Offence

One of the offences listed is the failure of a commercial organisation to prevent bribery. So even if you are personally innocent, as a business owner you are deemed responsible if a member of your staff offers or accepts a bribe in exchange for a favour of some kind related to the business.

You could appoint a member of staff to take on a policing role and to assess the risks of bribery in your sector and the markets in which you operate. Particular care is needed when new external relationships are set up, as you can be implicated by association with any wrong-doing. Make sure all your joint venture partners, associates, agents and representatives are squeaky clean to avoid prosecution by default.

Entertaining Customers and Targets

Corporate entertainment must be appropriate, and this is a grey area where you must make your own decisions about what can be included. While all this is much more likely to affect larger businesses, you could be at risk even as a sole trader, if you invite potential clients to over-extravagant events or meals in the hope of doing business with them. It will only take one complaint to be followed up by the authorities, to put both your reputation and finances in jeopardy.

The implications of the new Bribery Act are far reaching. All entrepreneurs need to understand them and take appropriate compliance action.

Do you Have Public Liability Insurance?

Assuming you do have public liability insurance, do you know what it covers? Some small businesses are aware they should have it, but they are not really sure why so here is a quick guide to what is covered and why it is so important.

Claims from the Public

Whatever your business offers, it must offer it to other people, either in other businesses or end user consumers. That is your obvious connection to other members of the public. But in the course of this, there may well be other occasional interactions with people, and risks of them making a claim against you. We never know what is around the corner. It could be your maintenance man up a ladder cleaning out guttering, when something heavy falls and injures a passer by. Or perhaps someone working on your premises leaves an obstruction on the public footpath and someone running by falls over it. Or maybe a visitor falls and injures themselves.

The legal costs of these claims can be high; so can the compensation claims involved. But your public liability insurance should cover it. And this could make the difference that allows the business to survive.

Bidding for Work

Having public liability insurance is sometimes a condition of a contract, especially for work in the public sector, and it is often required for joint ventures or contracts with larger firms. Without documented proof of your public liability cover, you may not be qualified to bid.

Loss of Earnings Cover

When you run a small business, public relations do not always go smoothly. If you are unlucky, unexpected happenings can get out of control and affect your reputation, and your profits. It is wise to have public liability insurance to cover such rare, but unfortunate, events if they should happen.

Why not have your outsourced bookkeepers review your public liability cover to check its relevance to your business? Or they could help you select from different quotes if you have to start from scratch.