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.

 

 

VAT Knowledge Makes for a Healthier Balance Sheet

If you don’t reclaim all the VAT you are entitled to, you could be losing hundreds of pounds a year. If that continues over a number of years, you’re looking at thousands. According to accounting software giant, Sage UK, reporting on the results of recent research, over a third of UK SMEs could make ‘significant savings’ on their VAT returns. More than half the business owners surveyed believed they might be around £500 or more better off.

Complicated Rules

The problem is the complexity of the VAT rules and the frequency of change. Busy entrepreneurs think they don’t have time to acquire the knowledge they need or to keep up with the changes. Having outsourced bookkeepers helps of course. It is part of their job to understand VAT and keep up to date. But they can only work with the information you give them, so it is important to keep careful records and proof of your purchases and expenses.

Mandatory or Voluntary Registration

The current turnover threshold for VAT registration is £79,000. If your business has not yet reached that level you don’t have to register, charge VAT, and pay it on to HMRC. But you may wish to register anyway as there are some advantages. Being VAT registered is seen as a sort of coming of age for a young business. It may attract more clients and customers because they believe you are more likely to have the experience and expertise they need.

Another advantage of initial registration is being able to reclaim VAT on many of your expenses in previous years. For goods you still hold, you can claim on purchases made up to four years prior to registering. This can include major asset purchases such as computers and other IT items, desks and other office furniture. It can also include the consumables you keep in your stationery cupboard.

Because you can only reclaim VAT on services bought during the six months prior to registration, there can be significant advantages to registering soon after setting up your business. Then you can reclaim on the legal and accountancy fees connected with the set-up, any services related to your premises and setting up your equipment, and so on.

Talking it Over Helps

Whether you are VAT registered, need to register or are just considering registration, it would be a good idea to discuss the implications of VAT with your bookkeepers. For those already registered or about to, you need to make sure you are or will be reclaiming everything possible, or whether it might be more advantageous to be on the Flat Rate scheme. If you are not sure whether to register before it becomes mandatory, discussing the pros and cons with someone independent of the company can often help you make the decision.

Could your Business Save Money on Energy?

Are you locked in to an energy supply contract in which you have to accept price rises? Has your initial contract been rolled over onto a new one without your knowledge? Many fixed term contracts for power supply include a clause that allows them to do this unless you notify them otherwise within a window of months before the end of the initial contract term. This could start three or six months earlier, but if your attention was never drawn to the clause you could be unaware of it, like many other small businesses.

Government Concern and Intervention

Prime Minister, David Cameron, recently confirmed that he has been concerned about this automatic roll-over practice because it “can lock small companies into paying above market rates”. His government set up a working group to try to get voluntary agreements to end roll-over contracts. The Federation of Small Businesses is cooperating with Downing Street on the issue because a quarter of its members have been “locked into contracts with un-negotiated price increases.” 

You and your bookkeepers may or may not be aware that energy regulator Ofgem has now set new rules for contracts with micro businesses. They will apply if you have fewer than 10 full time employees, or their equivalent, and your turnover is below £2 million. If you don’t fit this category but use less than 200,000 kWh of gas or 55,000 kWh of electricity, the rules will still apply.

The terms of contracts must be fully and clearly explained before you sign up to them. They must also be supplied in writing and include a statement of renewal terms. Suppliers must ensure that customers receive a reminder of this statement not more than 120 days before the end of the contract, so that they have an opportunity to research the market and decide whether to switch or renegotiate terms.

Big Six Response

Meanwhile the energy companies are beginning to respond to the government’s concern. The first of the major suppliers, British Gas, has pledged to abolish the automatic rollover of energy contracts for SMEs this September. The next to agree were npower and SSE, then EDF Power, leaving, at the time of writing, only E.On and Scottish Power of the six largest suppliers.

If you are within four months of the end of a fixed-term energy contract, whether or not you have heard from your power supplier, it’s time to look carefully at the small print, and consider whether you want to switch, continue as before, or renegotiate terms. If you are too busy, you could ask your outsourced bookkeepers to check the contract for you and give you their recommendations.

Do Not Lose Your Entrepreneurial Spirit

Can you remember how you felt when you first set up your business? How proud you felt and how determined to make a success of it? No matter how confident you were, there must have been some anxious moments. Since fear of failure didn’t hold you back, you had a truly entrepreneurial spirit. Everyone makes some mistakes, but you looked forward to being able to learn from them and carry on moving forward.

The Local Contributions of Entrepreneurs

Did you also want to make a difference in your local community, to provide jobs, useful products and services so that you could give something back as well as making a profit? There are lots of other ways that entrepreneurs contribute to society as well. Once your business was making money, you might have apportioned some of it to charity sponsorship. You could be supporting local schools and colleges with work placement offers. Educational institutions and sports clubs might run competitions with prizes you have donated. And of course you are meticulous about energy saving and recycling. While you are giving in this way, you could also be getting good media exposure, so don’t hide your light.

Good Customer Relationships

Did you cultivate your customers, remember things about them, listen to their feedback and act upon it? This is something that entrepreneurs are well known for. As your business has grown, you probably find this aspect more and more difficult, but the right technology can make it quick and easy to save and retrieve the customer data you need. It could be worth an investment in a customer relationship management system, plus staff training in the maintenance of data quality so that you know you can rely on it to give you accurate and immediate information when you need it. Your outsourced bookkeepers recognise the importance of this and will probably have a host of stories about the difference it can make to the bottom line.

Good Team Relationships

Entrepreneurs are good team builders and leaders. You are certainly aware that no staff team is static, but will change over time as individuals come and go. Your responsibility is to keep tabs on that, making sure that skills gaps are filled, newcomers are made welcome and brought up to speed quickly. If you have the reputation of being firm but fair and approachable, you should get the best out of everyone.

Flexibility and Adaptability

Unlike the cumbersome decision-making processes of big businesses, small business owners can respond to the markets and make necessary changes swiftly. If you have retained your entrepreneurial spirit, you will be keeping abreast of trends in buying patterns and business management, and adapting them, taking a willing workforce along with you.

All these characteristics are aspects of the entrepreneurial spirit that you can’t afford to lose. Consider them carefully if your bookkeepers are reporting any problems with income generation or cash flow.

The New Broom at the Bank of England

The new governor of the Bank of England, Mark Carney, is already making his presence felt. Although he is relatively young, Mr Carney comes with a good pedigree. With a career that culminated in the post of Governor of the Bank of Canada from 2008 to 2013, he is also the Chairman of the Financial Stability Board. This is the international body set up to promote effective regulation and financial sector policies, and to coordinate the different national financial authorities and international standard setting.

In the UK, his announcements and intentions are all interesting, but contentious. Your outsourced bookkeepers will be watching developments to see how his policies will end up affecting you and their other clients.

The Base Rate

His recent statement that the base rate of interest is to be held at 0.5% until unemployment is reduced from its current 7.8%, to 7%, is a continuation of his policy of ‘forward guidance’, which he introduced in Canada in 2008. He believes it will give both mortgage holders and small businesses confidence about their debt management for several years, and therefore boost the economy.

It has, of course, elicited much criticism. He may or may not be able to carry it off, depending how inflation and other aspects go. His focus for our central bank is said to have swung away from the traditional one of controlling inflation, to an emphasis on growing the economy. His own predictions are that it might take about three years to create the 750,000 jobs needed to arrive at the 7% unemployment figure.

The Chief Economist at the Institute of Directors, Graeme Leach, certainly doesn’t agree that forward guidance will boost the economy. He believes that after “a moderate growth spurt over the next 12 months” we’ll settle back to something like a GDP growth of below 2%.

Another worry is that it will encourage people to borrow more than is sensible. Your outsourced bookkeepers will be happy to give you an independent opinion on how much debt your business finances can stand. Meanwhile, The Institute of Economic Affairs has suggested that Mr Carney is ‘playing with fire’, because inflation could run amok as it did in the 1970s, causing worse recession and having the opposite effect to the one intended.

Stance on Women

Speaking on BBC Radio 4’s Today programme, Mr Carney discussed the fact that there are no women on the Monetary Policy Committee. He said that the best female economists should be supported to develop all the way through the ranks. He will be encouraging female candidates for positions on the Committee and even for the post of governor when the time comes for him to step down.

Life at the Bank of England is not going to be boring under Mark Carney.