It’s important for businesses to regularly review their tax positions and set up strategies to improve their cash flows to make sure they can stay on top of their tax obligations. Failure to do so can result in fines, but often the real pain is in simply having to take your focus off what is important to drive the business’ performance.
While most SMEs are able to pay their tax obligations on time, the reality is that cash flow problems can get in the way of any business meeting tax payments. The last thing a business needs is to be in a cash flow squeeze as tax falls due, which, unfortunately, is quite frequently the case after the festive season. It is important to ensure that cash flow is as strong as it can possibly be.
Improve Debtor Management
An obvious step is to try speed up the payments of your invoices from your debtors. Dun & Bradstreet’s latest Trade Payments Analysis (TPA) showed that Australian businesses settled their invoices at a record pace of 43.7 days in the first three months of 2016, as revealed by Dun & Bradstreet’s latest Trade Payments Analysis. That’s the quickest turnaround in several years but is still a significant amount of time for cash to be outstanding whilst your own suppliers are requesting payment and wages need to be paid. Then of course you may have shocks such as bad debts or customer insolvencies which can amplify the cash flow issue.
However, the most recent D&B report highlights that businesses are cashed up through lower borrowing costs, relatively low input costs and non-existent wage growth, and are paying their invoices with unprecedented swiftness.
So it is important to take advantage of this. Act now and ask your clients or customers to pay sooner. If you currently give 21 day terms, consider making it 14 days. Don’t wait more than you need to. It is always harder to extend credit when cash flow is tighter.
Another required action is to bring forward expenses that can be used as deductions and help to offset your taxable income sooner rather than later, potentially reducing any tax bill you get.
File Your Tax Documents On Time
Most importantly, file your tax documents in on time; otherwise you could be hit with a fine known as a failure to lodge on time (FTL) penalty. This may be applied where you are required to lodge a return, statement or other document such as a Business Activity Statement with the ATO by a particular date.
Other forms that a FTL may cover include:
• tax return
• fringe benefits tax return
• pay as you go (PAYG) withholding annual report
• annual goods and services tax (GST) return
• annual GST information report
• taxable payment annual report.
Review Your Tax Administration
Administration is tedious but getting your tax affairs in order is essential. To help organise your documents and records, think about investing in electronic accounting software or cloud based solution if you don't have it already. This will reduce errors in collecting cash flows – and, with the degree of automation now available, free up your time to concentrate on the most important thing - your business.
Consider Cash Flow Finance Such As Invoice Finance
If cash flow is still an issue for your business or industry, it’s also wise now to look into alternative forms of financing. There are a variety of tools now available to improve cash flow and ensure tax obligations are met, but invoice Finance is amongst the most common. Also known as factoring or debtor finance, providers typically advance up to 80 per cent of your outstanding invoices to customers within 24 hours of you applying. The balance (less fees) generally becomes available to your business when the invoices have been paid by your customers.
Over the past 25 years invoice finance has become a mainstream funding option for SMEs in the UK, the US and Australia, with the take up accelerating significantly in Australia over the past 10 years.
To give you an idea of just how popular this form of funding is, total debtor finance turnover for the 12 months to the end of December 2015 was $64.4 billion - an increase of 2.8 per cent over the 12 months to the end of December 2014, according to the Debtor and Invoice Finance Association (DIFA). FactorONE clients can benefit greatly from the increased working capital available to them through debtor finance, which can help overcome tax burdens, enabling you to avoid tax penalties (and therefore keep your credit rating intact), and it also enables you to focus on winning new business and growing your operations.
