CooperAitken Admin

Our business environment has been challenging for some time, and it is likely to continue in the near future. There are pressures with rising costs from suppliers, wage costs increasing, and an inability to attract new employees, just to name a few. Being an election year business owners have elevated levels of uncertainty with potential changes to policies that affect their livelihoods, family, and their staff.  There are many external factors that we cannot control such as rising interest rates, inflation, and a tight labour market. So, let’s focus on looking inward at our own businesses and see what we can improve to alleviate some of this pressure.  This article looks at ways to improve cash flow into your business from customers, focusing on your accounts receivable and reducing the time it takes for you to get paid. Reassess your customer payment terms Many commercial businesses follow conventional payment terms of payment being due by the 20th of the month following the invoice date.  Traditionally invoices would be sent by post at the end of the month with the due date being the 20th of the month, this gave people enough time to post their payment by cheque to their suppliers.  Technological advancement has seen invoicing processing time shrink considerably so you could look to reduce the payment terms to 14 or even 7 days following invoice date.  In terms of money entering your bank account how much would this change impact your cashflow? An example of how this benefits your cash flow is if you completed a job on the 4th of the month and billed it to your customer by the 6th of the month you could expect payment on the 20th that same month, this shows a cash conversion cycle of 16 days. If you kept the status quo then you could be waiting for payment until the 20th of the month following, this adds 31 days until you are paid for work completed.    If your bank balance is currently in overdraft then you are effectively paying the bank interest while you wait for customers to pay you. Would you be happy to discount your customer’s bill by the current interest rates being charged, say 15%?  In a way you are wearing the 15% interest cost of these credit terms.  In order for you to be able to achieve this potential cash benefit you would have to ensure your team has the capacity to generate an invoice promptly following the sale or completion of work.  If not, then perhaps a streamlined invoicing process is another key area of focus to consider.  Give customers ease with payment options These days there are many options for securing payment from customers.  Most people have access to Internet banking apps on their phones and can pay bills from anywhere and at any time.  The major banks now process money transfers seven days a week. This is good news for everyone as cash is flowing quicker than ever before. Put yourself in the place of your customer – what options are there for paying your business? Do you offer multiple payment methods? Here are some common ones to consider: Online banking – provide bank account number on your invoice or statement and the customer can pay at any time that suits them. Payment by eftpos or credit card – either at your business premises or mobile Direct debit – great for ensuring payment is received on time. Online – include links on your invoice to a payment service provider to process credit card payment or offer POLi for direct bank transfer Website – add a ‘pay now’ function on your website Cash – if you receive cash it is best practice to provide a receipt to your customer either electronically or from a carbon copy receipt book.  The goal is to make it convenient and easy for customers to pay. Asking for a deposit for sales where you agree on the price prior to starting the work is a great way to help with cashflow. The above-listed payment methods are not without risk or cost. Credit card and Paywave attract merchant and bank fees and a cash handling fee can be charged when depositing cash. In the world in which we operate, this is a cost of operating a business. Choose the options that you prefer once considering the cost and risks of each method. Talk to your customer There are  tools available to remind customers to pay their account such as end-of-month statements, automated invoice reminders, and charging late payment fees or interest to overdue accounts. These are often effective methods to trigger a payment response from customers.  When these tools are not enough it is important to phone and talk to your customer. Often a few minutes talking to your customer will result in action from them. Take a proactive and empathic approach to this.  It can be easier to ignore automated statement reminders whereas by talking with a customer you can help clear up issues. If you are willing to agree to a payment plan this can be preferable to the non-payment alternative. Note with payment plans there is a delay in when you receive payment, therefore you may wish to add interest to a payment plan to account for this delay. Getting paid on time is one important part of improving your cash inflows. Having money coming in when it is expected helps alleviate pressure and helps with your ability to pay your bills when they are due. Set aside time to regularly review your accounts receivable and be proactive with overdue accounts. Challenge yourself to put some time into assessing what changes you could make to improve the time between sale and payment. We want you to get paid for your hard work and effort. Please reach out to us if you want a sounding board or further advice on how to improve your current payment terms or methods.  Eddie Maber, Accountant.   Returns to

You might be considering offering some kind of incentive or bonus for your staff. It’s important to be aware that there are two types of bonuses an employer can give, an incentive payment or a discretionary bonus, and they are quite different. An incentive payment is generally paid on a regular basis if X Y & Z criteria are met. This criteria is outlined and agreed upon in the individual employment agreement. It is a set amount and is agreed upon in the contract with the employee. If the criteria outlined are met, then the employer must make this payment. However, a discretionary bonus is paid at the sole discretion of the employer. They are generally also performance-based, but the main difference is that it is not considered part of the employee’s regular pay and does not make up their total package. The employer can change the amount of this bonus at any time or not make a payment at all. Tax on bonuses also differs depending on what type you are paying. An incentive payment that is paid on a regular basis is taxed according to the employee’s tax code as this is considered part of their salary package. To work out the correct amount of tax on a discretionary bonus we need to apply the lump sum taxation method as this payment is above and beyond their normal wage. When selecting which type of bonus to pay your staff, it is also important to keep in mind the effect it has on holiday pay. As an incentive payment is part of the employee’s regular pay it gets included in their calculation for the average daily rate or relevant daily pay, therefore it bumps up the hourly rate that is required to be paid on holiday pay. In contrast, the discretionary bonus is not considered with these calculations as it is not part of their regular income. Our advice on bonuses is that you need to be very clear on what type you are paying and the effect it will have on your business. Have very specific parameters for the bonus, e.g. If you reach your sale target of $2,000 per month for the sales quarter of January to March, an incentive payment of $200 will be paid on the 20th of April. Or, A discretionary bonus of $500 might be paid to the employee for a Christmas bonus in December depending on the employee’s performance. As this is a discretionary bonus the employer can decide to change the amount, payment date or not make the payment at all. Ensure your employee understands if it is an incentive payment or a discretionary bonus and what that means to them. Bonuses can be a great way to incentivise your existing employees or recruit new ones. The trick is for the employer and the employee both to understand exactly what criteria need to be met for a payment to be made, how the payment will be taxed and if the bonus is discretionary or not. Here’s a quick breakdown of the differences; Incentive Payment Discretionary Bonus Calculated at normal PAYE Rates Calculated on Lump Sum Taxation Is a pre agreed amount that must be paid Is a discretionary amount that can be paid Is part of the whole salary package Is in addition to the salary Affects the holiday pay rates Does not affect holiday pay rates It is always a good idea to get expert advise that is tailored to your specific business and at CooperAitken we are more than happy to help. Anna Hollingsworth, Payroll Administrator Contact our Payroll Team:P: 07 889 7153E: wages@cooperaitken.co.nz Returns to blogs

The Taxation Principles Reporting Bill was recently introduced to Parliament stating that “The Government would like to increase the public’s understanding of the tax system and promote informed debate and discussion about its future”.   The Bill proposes 7 principles that are to be “universally accepted” as underpinning the design of good tax policy.  The principles identified are: horizontal and vertical equity; efficiency; revenue integrity; certainty and predictability; flexibility and adaptability; and compliance and administration costs.   This Bill comes off the back of 3 years of highly complicated and, at times, ad hoc changes to the tax settings that has occurred in the last 15 years.  The goal of efficiency is that “Tax revenue should be raised in ways that minimise distortions to the economy and the use of resources” whereas certainty and predictability aims that “People should be able to determine their tax obligations before they are due”. Though being at the theoretical end of tax legislation, had these principles been applied earlier we could have avoided the situation of having the ever increasingly complicated Bright-Line test rules and avoided the distortionary limitation of interest deductions on residential rental properties. The interest limitation rules for residential rental properties is one of the most unnecessary and complicated changes to the taxation system seen in a long time.  Had the 7 tax principles ruler been run across this legislation at the time it would have surely failed almost all of them.  The rules are proving to be distortionary and producing an outcome where an arbitrary date determines whether a property is able to have interest deductions for a period of 20 years or no interest deduction at all. It is the worst example of using the taxation system to attempt to fix a non-tax issue without regard for the distortions and complexity it creates for taxpayers.  It also opens the ability for the bigger and more well-resourced taxpayers to lobby for exemptions such as build-to-rent developers. There is no equity to giving larger landlords the ability to access an interest deduction due to scale vs the mum and dad investor who now cannot.  The 10-year (or 5-year if it is a new build) Bright-Line test is another example of the difficulty that taxpayers have in understanding their tax obligations without the assistance of tax professionals. Remembering that the principle of certainty and predictability means that taxpayers should be able to determine their tax obligations before they are due.  Some of the recent tax policy decisions that have been made has resulted in a highly complicated and ever increasingly difficult set of tax rules for the everyday taxpayer to navigate.  All too often taxpayers are caught out with a nasty surprise after they have sold the property, filed their tax return and merrily gone on with their lives. Often this is as a result of an accident rather than an attempt to derive income from property transactions, whether it is the misapplication of the main home exemption, of which there are now also different tests depending on when the property was purchased, through to change of circumstance situations for which there is no leniency. Brightline began with an aim of taxing property speculators who ‘flipped’ houses for a living. Now we see an ever-increasing list of exemptions and roll over relief provisions necessary to ensure negative tax consequences can be avoided.  This is a prime example of a set of rules are now far overreaching beyond their initial aim. There is very little flexibility in these rules, by design, which is resulting in tax outcomes not originally intended by the legislation. We can only hope that the principles within this piece of legislation result in more rational and logical tax rules and that future governments both apply it to the tax policy they set and engage in a process of removing some of these unnecessary and at times punitive tax burdens that we have seen appear.  And finally, remember, “The hardest thing in the world to understand is the income tax” – Albert Einstein. Rory Noorland,Partner, CA P: 0800 866 191E: rory@cooperaitken.co.nzM: 021 721 368 More on rory Returns to blogs