Monthly Archives: June 2016
In point-of-sale businesses like restaurants, retail shops and online stores, customers pay for their purchases up front. The only way you won’t get your money is if something goes wrong with your credit card processor. But if your business operates on an invoicing system, you’ll generally need to give customers up to 30, 60 or even 90 days to send in their payments — and, perhaps unsurprisingly, some of them won’t do it.
There are numerous reasons for a late payment or nonpayment: Perhaps the bill got lost in a pile of other papers (or, for email, in the customer’s inbox), or the customer had an unexpected expense and couldn’t afford to pay you by the due date. But regardless of the circumstances, an unpaid invoice can really hurt your business, and eventually you’ll need to take action if you want to receive your money.
It might be tempting to call in a collection agency the moment the due date passes, but doing so right away might make the customer feel threatened and upset. You want to deal with the problem head-on, said Greg Waldorf, CEO of invoicing app Invoice2go, but being straightforward doesn’t have to mean being aggressive. If a client or customer hasn’t paid a bill on time, here are the steps you should take, in this order, to ensure that you not only get your payment, but also maintain a good relationship with the customer.
Reach out to the customer. A friendly reminder that a customer’s bill is past due is the first step in collecting your payment. Most of the time, a late payment was an honest mistake, and receiving that first follow-up will make a client pay as soon as possible. Waldorf noted that the subject of money isn’t always easy to address, so you may want to ease into the topic.
“Use an opportunity to check in on a customer’s satisfaction for your services, and then discuss any approaching or past-due invoices,” Waldorf said.
Resend the invoice. In some cases, clients will try to delay payment by saying they lost the bill, or that they need to reconcile their records to find the correct payment amount, said Hunter Hoffmann, head of U.S. communications for small business insurer Hiscox. If this is the case, Hoffmann advised sending an updated invoice right away — even if you know the customer has the original — to take away this excuse.
Give an ultimatum. When a nonpaying client ignores your emails and calls about his or her invoice, demand payment a little more firmly. Service businesses working with the client on an ongoing basis are in the best position to give an ultimatum, Hoffmann said.
“Set a specific deadline when service will be cut off to light a fire under them,” Hoffmann told Business News Daily. “It’s amazing how quickly they can figure out how to pay when they realize how hard it will be to replace your service in a couple days.”
Waldorf advised requesting a time line for payment and continuing to follow up until the customer pays. If necessary, resend your original contract, indicating that you will escalate the situation if invoices remain past due.
Hire a collection agency. If repeated attempts to contact the customer and collect your payment have failed, it’s time to call in backup. A debt-collection agency is a company that specializes in recovering payments that are typically more than 90 days past due. The company will take the task of following up with the customer off of your hands, using tried-and-true tactics to get the individual to pay. This Business News Daily article contains more information on when and how to hire a collection agency.
File a lawsuit. For most small businesses, the time and money associated with suing a nonpaying client are not worth it. However, if that client owes you a large sum of money and refuses to pay you or a collection agency based on the terms of your contract or invoice, a lawsuit may be necessary. For example, Business Insider reported that public relations firm Agency 2.0 recently filed a suit against its former customer, an electronic bike maker that raised more than $5 million on Indiegogo with the firm’s help, for not paying or acknowledging the agreed-upon 10 percent cut of its raised funds. If you do decide to pursue legal action, consult with an attorney to determine how to proceed.
What to do in the meantime
If you’re strapped for cash and don’t know when a customer will send his or her payment, a factoring service may be able help you get the money you need while you’re waiting. With a factoring service, you sell your accounts receivable to a company for a certain percentage of the accounts’ value (usually 70 to 90 percent), and that company will advance you most of that money within a few days. Then, it will collect your customers’ payments and send the rest of the cash to you, minus the service fee.
It’s important to keep in mind that factoring services are not collection agencies, and they will run a credit check on your customers before agreeing to purchase their invoices. If you use a factor for multiple customers’ invoices, the service fees will add up, and you may end up losing money in the long run. To learn more about using a factoring service and how it differs from a collection agency, visit Business News Daily’s guide.
The end of the calendar year is an important time for businesses of all sizes. It’s not only prime sales season for retailers with holiday promotions but also when businesses need to start organizing the year’s financial information for tax season.
Though the April 15 filing deadline may be months away, your company should be thinking about ways to make that period as easy as possible. We spoke with business and financial experts about what small business owners should be doing right now to prepare for tax season.
Automate your tax prep
In today’s world, there are countless programs, apps and services available to help make tax time less of a burden. Jonathan Barsade, CEO of sales tax solution company Exactor, advised looking into tools that allow you to automate any or all of the financial record-keeping process.
“Trying to stay on top of tax rules and rates and then … completing tax returns and filing them on time is a mind-boggling task, especially for small businesses that operate across multiple locations and do business across state lines,” Barsade told Business News Daily. “The way taxes should be dealt with in this modern age of technology is to automate the process. The earlier the business owner proceeds towards automation, the less time they will need to work in tax season, which means more time remaining to focus on your business.”
Richard Milam, office productivity expert and president and CEO of EnableSoft, an automation software company, advised taking a look at your current systems to see what can be updated and optimized between now and the end of the year.
“Get the tools you need … to get ahead of [the year-end rush] so you’re not playing defense,” Milam said. “Identify what systems need to be updated, so when it comes time to close the books, the data is in place and it’s clean. Make sure it’s been reviewed and is ready for audit — in any business, that interruption is costly.”
Review your business expenses
As every business owner knows, tax season means taking stock of the company’s income, expenses and deductions. To get ahead of this task, business owners should do this throughout the year, thus ensuring a smooth ride when it comes time to file taxes.
“The biggest part of preparing for taxes is what should already have been done — that is, keeping track of all business expenses throughout the year,” said Steve Gibson, director of online form builder JotForm. “If everything [has been] entered into your accounting system in a timely fashion, then the hardest part is done. If not, you need to set aside some time to gather and enter everything correctly.”
“Match purchase orders with invoices and shipping notices, and include the customer payment receipts,” added Evan Singer, general manager of small business loan application service SmartBiz. “File these together to make everything easy to locate, and give it to your accountant.”
Implementing a good filing system, whether digital or paper, is key to making sure you can easily locate and organize all of your business expenses, Singer said. He noted that cloud-based accounting software like QuickBooks Online and Xero are affordable options for small businesses looking to sync and track bank account activity, expenses and invoices.
Learn which tax law changes will affect you
Tax laws are constantly changing, and it’s wise to stay alert and up-to-date on changes that could affect your business. For example, Nicole Odeh, a tax and accounting expert for The Neat Company, a business software and services provider, reminded business owners that new reporting requirements for the Affordable Care Act have begun to take effect, and if your company offers health insurance, you’ll need to make sure you’re meeting those requirements.
“Additionally, although it does not affect this upcoming tax season, there have been some filing deadline changes for the following tax season, and this will be a huge change in thinking and planning for many small businesses,” Odeh said. “Calendar-year partnerships [those whose tax year ends on December 31] will be required to file by March 15, which is one month sooner than they are used to.”
Ever since the Jumpstart Our Business Startups Act (JOBS Act) was signed into law in 2012, there’s been a great deal of buzz about Title III, the final provision of the law to be implemented. This so-called “equity crowdfunding” measure would open new pathways for small businesses to raise capital from nonaccredited investors. On Oct. 30, the U.S. Securities and Exchange Commission (SEC) approved the final rules for Title III, signaling that the long wait for equity crowdfunding would soon be over.
But the public’s anticipation of Title III belies the reality that it is already possible to raise capital from nonaccredited investors. By using certain federal securities exemptions — referred to generally as direct public offerings (DPOs) — businesses (and, in some cases, nonprofits and cooperatives) can employ a number of cost-effective strategies that allow them to directly appeal to potential investors, all the while tailoring the terms of the offering to their specific desires.
A direct public offering is the process of using a federal securities exemption to directly sell equity to virtually anyone. These offerings are approved by state regulators, so the rules vary a bit depending on each state’s relevant statutes.
“It’s a very flexible strategy,” Brian Beckon, vice president of Cutting Edge Capital, told Business News Daily. “[The terms of the offering] are really up to the entrepreneur. This is what’s great about a DPO; you don’t have a negotiated investment. What the regulators approve is the offering, which is non-negotiable and exactly what the entrepreneur wants.”
Investors can choose to buy in or opt out based on those established terms, but the issuer remains in the driver’s seat every step of the way. Beckon’s firm advises clients on the steps involved in undergoing a DPO, from reviewing financials and preparing documentation to attaining approval from regulators. Once regulators in the state where the offering will take place grant a permit, all that’s left to do is pitch to potential investors, with the aim of accumulating capital.
When consumers apply for credit cards or loans, their credit scores are often the single most important factors in deciding whether their applications are approved. But what about when you’re applying for a business loan?
While business lenders will certainly take your personal credit into consideration, it’s far from the only factor they will consider. Ted Peters, chairman and CEO of the Bluestone Financial Institutions Fund, outlined what is known as the five “C’s of credit” that commercial lenders look at to make a credit decision.
Cash flow. Lenders look at your historical and projected cash flow, as well as your sales numbers, to determine your ability to pay them back in a timely manner.
Collateral. Depending on the strength of your cash flow, banks may look at your current assets — mortgage, working capital, inventory, etc. — to see if anything can be used as collateral to secure your loan, should you have trouble paying it back. [First Small Business Loan? 7 Things to Consider]
(Business) Credit. In addition to your personal credit and payment history, lenders will check if your business entity has established any past credit, including on-time bill payment for any B2B services. Many lenders use reports from business data company Dun & Bradstreet to access this information, Peters said.
Character. Your overall character and reputation in the community matter to the people taking responsibility for funding your business. This is part of the reason lenders will set up an in-person meeting to discuss your application and credit needs.
“Lenders meet with people [to] look them in the eye [and determine], ‘Is this someone we trust and want to do business with?'” Peters said.
Capacity. Peters noted that this is typically the least important factor in a credit decision, but lenders still want to know the capacity your business has to grow. A local ice cream franchise, for instance, has a limited capacity to boost sales, but a global e-commerce or tech business could grow exponentially in just a few short years.