NZ business owner paying provisional tax with TMNZ

How TMNZ tech takes the pain out of tax

As New Zealand’s first ever tax pool, we’re proud of our long history of innovation. It’s at the heart of everything we do, and we’re always looking for new ways to simplify tax.

Technology has been at the forefront of our efforts, whether it’s rolling out new features for our customers, adding new functionality online, or partnering with forward-thinking digital platforms.

Recently, we’ve rolled out some amazing tools to help our customers and their accountants easily manage income tax.

Discover our top tech solutions to help you take the pain out of tax time, including tools to cut down on admin, share data between platforms, and get instant information on things like tax swaps.

Inland Revenue Integration

TMNZ’s online dashboard is fully integrated with Inland Revenue (IR), meaning taxpayer information held by IR can be seamlessly shared on our platform, to make accountants lives easier.

In the past, accountants had to deal with multiple systems and spreadsheets to find accurate IR information. Integration means this admin work is no longer required.

Inland Revenue and TMNZ systems are connected so that key IR information is automatically populated on our dashboard. All relevant IR data, including Residual Income Tax figures, filing dates, and direct IR transactions appear on the TMNZ dashboard once you’ve logged in.

Thanks to IR integration, accountants can save time and reduce admin work. IR integration also removes the risk of manual errors as clients populate information from one platform to another, making the process much more efficient.

IR information is fed into our calculator to help you determine your (or your client’s) tax position as quickly as possible.

Kathleen Payne, Partnerships Director at TMNZ, says:

“Following IR integration, all the data you need for your calculations goes straight onto our dashboard. All you have to do is put in the current year’s position that IR might not know yet, and everything is calculated without further data entry.”

Accountants can obtain client consent (if they don’t already have it from their engagement letter) and the integration process without leaving our platform. There’s no need for third-party software, and it’s ready at the click of a button. Once an accountant authenticates their client list through MyIR, a digital consent form is sent to the taxpayer. After they sign digitally, IR integration is ready to go.

The good news doesn’t stop there. Recently IR approved TMNZ’s integration to meet their due diligence standards. That means clients can expect to see even more changes to the integration very soon. These will further improve the performance and simplification of our products, by leveraging data that IR already holds about taxpayers.

If clients need any assistance with our current IR integration, then TMNZ's friendly support team is on hand to help.  And you can find out more about IR integration here.

Taxlab integration

Our systems are also fully integrated with Taxlab, the cloud-based tax software system designed specifically for New Zealand accountants.

Taxlab integration is easy to set up and use. Once you’ve completed the process, TMNZ transactions will appear on the Taxlab platform. Clients no longer need to use different systems to calculate their tax position.

“Accountants will get a complete picture of all TMNZ transactions sitting against their clients’ tax year,” Kathleen says.

Like IR integration, the setup couldn’t be simpler:

  • log in to Taxlab, go to ‘Settings’, and add TMNZ as a connection
  • you’ll then be directed to TMNZ to log in and confirm
  • from there, you’ll be able to view TMNZ tax pooling information, including a full history of purchases, deposits, transfers, and tax payments.

Integration with Taxlab reduces the time and effort spent sharing information across the two platforms, giving tax agents even more time for their valuable client work.

Kathleen Payne, TMNZ Director of Strategic Partnerships
Kathleen Payne, TMNZ Partnership Director, discusses tax technology

Group Optimiser

If you’re a busy accountant in public practice looking to manage the tax year for groups of clients, TMNZ’s Group Optimiser tool is tailor-made for you.

This innovative feature enables accountants to calculate the position of several taxpayers and create multiple transactions at once.

Used alongside IR integration, Group Optimiser can make tax calculations even simpler.

Kathleen adds:

“Instead of having to prepare spreadsheets for each member in a group and then decide who has overpaid or underpaid tax, agents can use our calculator to enter a small amount of information. Then, at the click of a button, Group Optimiser calculates how to use the tax across the group in the most effective way.”

Group Optimser is ready and waiting on the TMNZ dashboard. All you need to do is log in.

Upcoming Deadlines

The Upcoming Deadlines function on the TMNZ dashboard is another of our top tech features.

For accountants managing several tax pooling clients, the Upcoming Deadlines feature can be used to track taxpayers ahead of key dates.

Offering total visibility over client tax positions as deadlines approach, the tool suggests prompts and actions to finalise the year.

“It also gives accountants a control list to work through their clients and ensure everything has been finalised,” Kathleen says. “It’s a workflow and control function and will remind advisers about everything they need to do for their clients.”

Automated Tax Swaps

TMNZ’s automated Tax Swaps is our latest dashboard feature, enabling clients to get instant quotes and process swaps below the threshold*.

Tax Swaps allow clients to even out their provisional tax payments if they have overpaid on one date and underpaid on another, saving on IR interest costs.

With our automated Tax Swap service, clients will benefit from faster, more efficient processing

The best part? The Tax Swap function is DIY.

“It’s a self-service system,” Kathleen explains. “If a client knows the swap they want to do, our system will automatically say, ‘Yes, you can do it, and this is the interest you’ll get’. You won’t have to interact with us at TMNZ. You can do-it-yourself.”

“It’s super efficient,” she adds. “Clients will have certainty of the outcome, they’ll know how much interest they’ll have to pay, or what they can earn, in an instant.

“At TMNZ, we’re all about flexibility, and empowering our customers to make decisions at a time that suits them.”

Automated Tax Swaps launch later this month, following our pilot with TMNZ's Early Adoptor community in April.

Become an Early Adopter

Are you part of TMNZ’s Early Adopter community, who gets first access to all our latest tech features?

Early Adopters enjoy the benefits of our new products and enhancements before anyone else, with support and training to help you make the most of new tools.

As an Early Adopter, you can share feedback and experiences to help us develop the best tech possible for accountants and clients.

“We love working with people to create the best tax solutions possible,” Kathleen adds. “Our Early Adopters are highly motivated, creative people who want to help us get even better.”

If you’re a tech savvy tax pooling user in an accounting firm, become an Early Adopter in a few simple steps:

  1. login to your dashboard
  2. Select your firm
  3. select ‘Early Adopter Programme’, from the left-hand menu
  4. review and accept the Terms and Conditions presented
  5. click the ‘Sign up’ button.

To learn more about TMNZ’s latest tech developments, head to our Innovative Tax Technology page or contact our support team today.

 

*the threshold is subject to change depending on market conditions.


Missed your latest provisional tax payment? How you can find relief

If you own a business, you’re probably familiar with paying provisional tax. Which means you’re also familiar with its inflexibility, and the penalties and interest that accumulate if you miss a provisional tax due date.

The problem with this model is how it affects your cashflow. You need money to pay staff, cover operational expenses, and invest in growth initiatives, yet it’s tied up in saving for tax time. Or worse yet, in shelling out for Inland Revenue (IR) interest and penalties on late payments.

No matter which camp you’re in, there is relief and it’s called tax pooling.

If you own a business, then you can benefit from tax pooling. Let us explain how.

First, what happens if I miss my provisional tax payment?

If you’ve paid taxes late or haven’t paid enough by the provisional tax due date, Inland Revenue may charge penalties or interest on your unpaid amount as follows:

  • A 1% late payment penalty is charged on the day after the due date
  • An additional 4% penalty is charged seven days after the due date — including late payment penalties (LPP)
  • UOMI may be charged from the day after the due date – UOMI will be charged daily until you have paid your total tax amount, including late payment penalties and any accrued interest.

What is tax pooling?

Tax pooling is unique to Aotearoa, with Tax Management New Zealand (TMNZ) being the first and largest tax pooling business. Essentially it allows tax paying businesses to pool their provisional tax payments in an account held by a registered tax pooling intermediary like TMNZ. This way, we offset one business’ underpayments by another’s overpayments. Think of it as business helping business!

Because we’re able to backpay your unpaid tax, it is no longer considered a ‘late payment.’ Meaning you avoid the IR penalties and fees on any missed tax payments.

With TMNZ, you have the flexibility to make a one-off payment or set up a regular instalment arrangement, giving you up to 13 months to pay your provisional tax. Additionally, if you've missed your terminal tax date, TMNZ can still help reduce interest costs and eliminate late payment penalties.

How about for historic payments from Inland Revenue reassessment notices?

TMNZ can also assist taxpayers with historic income tax payments and other tax types such as GST and PAYE if you receive a notice of reassessment from Inland Revenue. You have 60 days from the date the Inland Revenue issues this notice to use tax pooling.

What’s the catch?

Paying provisional tax through a tax pooling intermediary such as TMNZ lets you pay what you owe at a time in the future that better suits your business, or take advantage of instalments to avoid the provisional tax late payment penalty.

There is some interest to pay – but this is much lower than Inland Revenue’s interest on tax paid late or what you will incur if you use your business overdraft or get an unsecured loan. Tax pooling wipes the late payment penalties.
All you have to do is tell the tax pooling provider the amount of tax that is due and when or how you would like to pay it. They take care of the rest and even notify Inland Revenue of your arrangement. Easy-peasy.

Save yourself the tax trouble. Find out more.

If you've missed your provisional tax payment or are struggling to meet your tax obligations, you’re not out of luck.

TMNZ can help ease the financial strain of late payment penalties and provide much-needed cashflow relief. Contact your accountant or tax agent and let them know you want to pay your missed or underpaid provisional tax using TMNZ tax pooling. Or get in touch with us directly to explore your options and take control of your tax payments.

Don't let a late payment penalty derail your business. With tax pooling from TMNZ, you can navigate the challenges of tax season with confidence and peace of mind.

Contact our team to take advantage of tax pooling today.


Tax Drawdown: Use your tax payments as a line of credit

Every now and then, businesses can encounter cash flow struggles, whether you have overdue invoices or an unexpected bill to pay. When this happens, it’s typical to ask your bank for help. But did you know there’s an easier, cheaper way?

As a TMNZ customer, you can access funds you have paid into our tax pool at any time. You can draw out your deposits as an affordable line of credit without the headache of a loan application, conversation with a bank, or Inland Revenue (IRD) paperwork and still keep your original tax deposit date.

How it works

Imagine your business is suddenly hit with a big cost and you need some quick cash. By getting in touch with TMNZ, you can access the money you’ve already paid into and held in our pool. 

You can draw down the funds on a temporary basis, and our flexibility helps you solve a short-term business challenge in a simple, cost-effective way. 

TMNZ Tax Drawdown allows you to use your tax payments in the pool as collateral to take out funds at attractive interest rates. You can request money at any time and it will land in your account within three to five business days (provided AML requirements are met). 

The benefits

Tax Drawdown puts you in control. You can borrow money for a minimum of four weeks or a maximum of up to 75 days after your terminal tax date. Once you’ve paid us back, we can continue to hold those tax payments in the pool (which will be available for a future drawdown) or transfer the payments to the IRD to meet your tax liability. 

Small businesses and larger companies alike can tap into Tax Drawdown, and there’s no limit to how much of your tax deposit you can withdraw.  

If your current tax pool doesn’t do drawdowns, fear not. You can transfer your tax pool payments to us and kick-start the process immediately. 

While Tax Drawdown is a bit like a line of credit, we don’t charge line fees or establishment fees like the banks.  

TMNZ can also offer more competitive interest rates than the banks. Our rates are the same as our finance rates, which are much closer to the cost of a home loan than a small business loan. Interest costs depend on how much money you take out and the duration of your withdrawal and you’re only charged for the period you use the funds. 

Kathleen Payne, Director of Strategic Partnerships at TMNZ, says Tax Drawdown can be a business lifeline. 

“It’s really useful for businesses that need to make a capital investment, buy stock, or simply position themselves for the rest of the year. People can use our tax pool to their advantage and it’s so easy to do, with interest costs limited to the time they’re using the funds. It’s another working capital option for businesses, particularly in an environment where cash flow is causing a lot of constraints.” 

How to use Tax Drawdown

Accessing your money is a painless process. Get in touch with us or ask your tax adviser to call or email our team.

Kathleen says Tax Drawdown applications are “relatively simple” and can be made multiple times a year.  

“A small amount of information needs to be provided. We ask how much money you need and how long you need it for. We then work out your interest rate, finalise the terms, and get it signed.” 

Kathleen says Tax Drawdown can help businesses and the New Zealand economy by freeing up money for investment and growth. 

“If you think about what businesses use the funds for, it’s additional spending in the economy. Tax Drawdown enables people to use money at a reasonable cost to make capital investments, investments in staff, or meet a market challenge. 

“All of these things help businesses survive and thrive, and it has a circularity for the whole economy,” she says. “It’s money going back into the business community while helping companies meet their tax liability. So everyone’s a winner.” 

 

In need of flexible, affordable financing? Contact our team to take advantage of Tax Drawdown today.


How to manage cashflow over Christmas

Everyone loves the middle of summer and spending time with family and friends over Christmas, but it can be a challenging time of year for many small and medium-sized Kiwi businesses.

According to a poll conducted by the Employers and Manufacturers’ Association, more than half of businesses experience cashflow constraints between January and March.

It’s hardly surprising. The period after Christmas is traditionally slow for many companies, with people away enjoying their holidays. Consumers also tend to reduce spending after the expensive Christmas and New Year period.

Businesses can come under pressure for a number of reasons. Earnings will be down if companies shut over the break, while others will feel the pinch if they have paid bonuses before the end of the year.

Considering these facts, it’s understandable that many businesses struggle to manage cashflow and make provisional tax payments on 15 January every year.

Unfortunately, the Inland Revenue doesn’t factor in these seasonal challenges. It expects payments to be made on time and charges taxpayers late payment penalties of up to 20 percent per annum and use of money interest (UOMI) if tax is not received on the due date.

Your options for managing cashflow

What are the best options for businesses that want to manage cashflow and free-up money over the summer?

Tax pooling is IRD-approved and can be used to defer provisional tax payments to a time that suits the taxpayer without incurring late payment penalties and UOMI.

This method is cheaper than using many traditional forms of finance. Rates at Tax Management NZ (TMNZ) start from below eight percent, and tax pooling doesn’t affect existing lines of credit. Also, no credit checks or security are required.

The full amount of finance doesn’t need to be paid back if less tax is owed than first thought. The finance arrangement can be easily extended as well.

How tax pooling can help

Say you want to defer a $5,000 provisional tax payment for six months. You would pay TMNZ a one-off, tax-deductible interest amount and TMNZ would arrange the $5,000 provisional tax payment on your behalf.

The interest amount is based on the amount of tax financed and the period of maturity, so in this instance, ​it would be roughly $205.

The provisional tax payment is held in an IRD account administered by the Guardian Trust. Guardian Trust instructs the IRD to transfer the tax into your IRD account when you repay the $5,000 principal in six months’ time.

The IRD treats the $5,000 provisional tax as being paid on time once the transfer is processed. It’s that simple.

Ready to ease your seasonal cashflow worries? Get in touch with our team to discuss tax pooling options today.

Find our latest resources on tax pooling and calculating tax using the Standard Uplift method here: https://www.tmnz.co.nz/calculating-provisional-tax/


Image: Bart Taylor

Syncing provisional tax to cashflow

As a self-employed painter and decorator, Bart Taylor knows full well how business owners can get themselves into strife if they don’t plan for their tax obligations.

He speaks from his own personal experience.

That’s why Bart is happy to talk about how Tax Management NZ (TMNZ) enables him as a self-employed tradesperson to take the stress out of having to pay provisional tax on dates dictated by Inland Revenue (IRD).

TMNZ offers Bart the flexibility to make the payments when it suits his cashflow.

As someone who doesn’t always get paid every week, that’s important because it offers his business some breathing space while he waits for the money he’s earned from completed jobs to land in his bank account and ensures that other important invoices can be paid in the meantime.

A bit about Bart

Bart owns and operates his own business in Christchurch.

He’s a one-man band and that’s the way he likes it. Plus, most of his work means he does not require a crew, although he will occasionally use contractors when required or on larger jobs.

Bart has been his own boss since 2013, when, at the age of 24, he decided to make a go of this painting lark on his own. The market in the Garden City was awash with painting gigs during the rebuild and becoming self-employed seemed like a low-risk move.

Fast-forward nearly eight years and his gamble has paid off. He is enjoying the benefits that come with self-employment and, as a husband and father in a young family, the better work-life balance he has achieved.

Tough tax lessons

Yet that’s not say that everything has been a bed of roses during that time.

“Becoming self-employed has been a bit of a rollercoaster. Lots of learnings, lots of difficult times, hard times,” says Bart.

“First and foremost, I’m a tradesman, so I am a worker. The back office, the organisation, the financial side of things is not my strong point. With the tax side of self-employment, I managed it very poorly for years because I was so young.”

Like other business owners, Bart wasn’t as prepared as he should have been and was “stung” in his second year of trading. That was when two years’ worth of tax was due. Ouch.

He admits having to pay provisional tax was “rough for a little while”.

“In the trade industry, you don’t always get paid every week and you need cashflow to run your business,” explains Bart.

“My accountant saw there was a risk of if we paid that tax bill in full, that I might fall short in other areas and he wanted to make sure that my relationship with my trade suppliers stay good and that the invoices I need to pay get paid on time, not just the IRD ones.

“He recommended Tax Management NZ and that freed up cashflow.”

Breathing space from IRD to manage cashflow

That’s because TMNZ gives Bart the flexibility to pay his provisional tax when it suits his business, without the consequences of steep IRD interest and late payment penalties.

It operates with the blessing of the taxman, too.

TMNZ makes a date-stamped payment to IRD on Bart’s behalf on the date his provisional tax is due. Bart pays TMNZ at a time when it suits his cashflow.

TMNZ transfers the date-stamped payment to Bart’s IRD account and IRD treats it as if Bart himself has paid on time. This eliminates any IRD interest and late payment penalties showing on his account.

“Sometimes the option of TMNZ, to be able to borrow some money for a short period of time, to make sure you hit that IRD deadline, frees you up with your cashflow until that payment [you are waiting on] comes through,” says Bart.

“The fee of using Tax Management NZ is so low and affordable in comparison to the failings of if you ran out of money in that time, or the scramble and the stress, so it’s definitely worth it.

“It’s changed my perception around making these tax payments. It takes the stress off of it.”

And how does dealing with TMNZ compare to dealing with IRD?

“You get a bit more of a personal touch with Tax Management NZ because you get a prompt response and it’s not a cookie-cutter [reply].”

Bart is one of many small business owners throughout New Zealand who benefits from the provisional tax flexibility TMNZ offers. Feel free to contact us for more information about our service or if you have any questions. We're happy to help. Alternatively, you can register with TMNZ here.


Image: Cashflow chart

What is a cashflow forecast, exactly?

Image: Cashflow chart

Most people nod in agreement when they hear the fable of the ant and the grasshopper – the ant worked all summer while the grasshopper lazed about, only for a starving grasshopper to come begging at the ant's door in winter.

However, it's surprising how few business leaders apply the common-sense lessons the fable teaches.

Many could be forgiven for thinking that the fable is about the value of hard work, and it is to an extent, but it is also a story about prediction and preparation – know what's coming and prepare for it.

Your stock standard cashflow forecast is an essential tool for this purpose.

In its most basic form, a cashflow forecast is a table that 'predicts', over a specific time, a) the money the business expects to receive, and b) the money the company expects to pay out – in essence, how much money you expect to have on hand in any given period.

The benefit of a cashflow forecast is that it allows you to predict the lean times, like winter for the ant, and the good times, like summer for the grasshopper. Summer and winter are pretty straightforward, but real-life business is far more complex and needs to consider, for example, factors like seasonal variables, capital expenditure and increases in expenses like rents.

A cashflow forecast is not a sales forecast, which concerns itself with predicted sales in the coming period and sometimes errs on the side of optimism.

The cashflow forecast should include expected sales but err on the side of conservative – sales aim for the stars, the cashflow forecaster settles for the moon.

1. Determine the period

The ant and the grasshopper concerned themselves with summer and winter. Business leaders will often prepare an annual cashflow forecast, but some argue it's best to take the ant's lead and forecast for a shorter period – even six months, or at least plan to review your cashflow forecast quarterly.

2. Predict your income

Look back over the last couple of years to get a handle on averages as well as the ebb and flow of cash, accounting for seasonal fluctuations and unforeseen variables that have impacted you in the past. Some would argue that basing your cashflow forecast on past performance is looking back, not forward, which is why using your sales forecast is important. Your historical financials may help you temper the optimism of the sale forecast towards realism.

3. Add your costs and outgoings

Don't leave out the small expenses because they quickly add up. Remember that not everybody pays on time. Kiwi SMEs wait on average 24.1 days to get paid, according to Xero's Small Business Insights for December 2020. Consider the risks associated with cost increases, like telephones and other fees. Plan for the best, expect the worst.

4. Put your cashflow forecast to work

A good cashflow forecast will give you an idea of what to expect so that you can prepare now to address any issues. If, like the ant, you note that the winter months of June, July and August will be tight, take steps to prepare better or improve the situation.

In the words of Sir Richard Branson, “Never take your eyes off the cashflow forecast because it's the lifeblood of the business”.

Tax Management NZ has produced a guide called Better Cashflow Management. You can download your free copy here.


Image: Flooded road

Cashflow relief for farmers impacted by flood or drought

Image: Flooded road

Those impacted by flooding in Canterbury or drought elsewhere in New Zealand have another option to manage their cashflow.

It’s called tax pooling.

It lets taxpayers defer their upcoming provisional tax payments to a time that suits them, without incurring interest (currently seven percent) and late payment penalties from Inland Revenue (IRD).

The service – which has been operating with the blessing of the taxman since 2003 – is available through an approved commercial provider such as Tax Management NZ (TMNZ).

The impact of extreme weather

The Government has declared the recent flood in the Canterbury region as a medium-scale adverse weather event.

As those in this part of New Zealand assess the damage and begin the clean-up following the large deluge of rain, a big dry is beginning (or, in some cases, continuing) to bite other parts of New Zealand. The drought has been classified as a large-scale adverse weather event.

Farmers impacted by these contrasting weather events are being encouraged to act early and assess their options if they need assistance.

For those battling drought, some tough decisions around stock and feed will need to be made. In the Canterbury region, flooding only compounds the financial pressure as many were also dealing with drought beforehand.

Cashflow will be important during this difficult period.

Help is available

Managing tax payments will be a key consideration in managing cashflow too.

IRD, to its credit, is exercising some discretion.

It will allow farmers and growers affected by the Canterbury flood to make early withdrawals from the income equalisation scheme.

For those whose current or future income will be significantly affected by drought, IRD will allow late deposits for the 2019-20 income year up to 30 June 2021.

Early withdrawals are also available in the case of a medium-scale adverse event or if someone is suffering serious hardship.

Please note a taxpayer must satisfy certain criteria for IRD to exercise its discretion around the income equalisation scheme.

There's also the option of re-estimating provisional tax.

However, while that allows someone to get a refund of tax they have paid earlier in the year, it does come with some risk.

Free up cashflow by deferring payment of provisional tax

Farmers growers with a May balance date are due to pay their the final instalment of provisional tax for the 2020-21 income on 28 June.

For a small interest cost, someone can use TMNZ to defer this payment.

We make a date-stamped tax deposit to IRD on behalf of a taxpayer on 28 June and the taxpayer pays us when it suits their cashflow.

A taxpayer can either pay the full tax amount at a date of their choosing or enter an instalment arrangement.

When a taxpayer satisfies their arrangement with TMNZ, IRD will treat it as if the taxpayer had paid on time. Any interest and late payment penalties showing on their account will be remitted.

A taxpayer has up to 12 months to pay their 28 June provisional tax with TMNZ.

TMNZ’s interest cost is much cheaper than what IRD charges when someone pays their tax late.

Please click here to register with TMNZ. Alternatively, feel free to contact us if you have any questions.


Image: Process planning

How to set up processes that can help relieve your cashflow pain

Image: Process planning

There's a parable about a man who built his house on rock and a man who built his house on sand. When the rains came, the latter lost everything. It seems evident that only a fool would build on sand, but you will be surprised by how often all of us resort to the easy way out – shortcuts and compromises – all the while telling ourselves we'll sort it out later. 

Putting in place a good cashflow structure for your business is like giving yourself a solid foundation for the future, but it's not unusual for the process to be plagued by compromises.

The good news is that it's never too late to start.

Businesses have a way of starting small and evolving organically. In the early days of a company, customer relationships may be more personal and unique. You may be tempted to agree to special arrangements like payment terms and methods. You tell yourself you need the business, but this can quickly become messy and will most certainly impact your business further down the line.

If you have been in business for some time but you're tired of struggling with cashflow, or your company is relatively new, it's never too late or too early to start with setting good cashflow policies and processes. The most important thing is not to be wishy-washy about your policies and structures but to act consistently and firmly, no matter how tempted you may be. Like most temptation, giving in brings pain later.

Reminder emails and texts

Spark does it. A day or so before your telephone bill comes due, you will most likely get an email reminder from Spark. If a big corporate like Spark can send reminder emails, why can't your small business? A common reason for not sending reminders is that we want to protect our customer relationships. Remember the man who built his house on the sand?

Set in place a reminder email to go out the day before your invoice is due. If you can implement the policy at the start-up stage or if you are already in business and are worried about ruffling feathers, apply the reminder email or text rule to all new customers moving forward (at the very least).

The Spark email reads: 

Hi there,

This is a friendly reminder that your bill is due on 21 April 2021. If you haven't already, please pay $xx.xx on or before the due date.

Very easy, very simple. Do the same with your business.

Past due invoices

When an invoice becomes past due, do you put off calling to follow-up? Do you tell yourself that you'll wait a couple of days because you're sure they'll sort it soon enough? The truth is that most late payers do eventually pay, but that doesn't mean it's the right thing to do, and it does nothing to help your cashflow. If the bill is past due by one day, pick up the phone or at the very least send an email reminder. Opening up a dialogue sooner rather than later gets you paid quicker.

Consider automating past-due follow-up emails to save yourself the time and the angst of doing it yourself.

Set clear payment terms

Corporate clients may resist your payment terms, or you may choose to adopt standard industry payment terms, and that's all acceptable – so long as you have payment terms that will spare you cashflow pain. Agree on these with your customers upfront and get it in writing either in your contract or email. 

One cashflow enabler you might want to try is putting a deposit condition into your payment terms, like 25 percent or even 50 percent upfront.

Invoicing is not an afterthought

Set aside a specific day to do all your invoicing and stick to it. 

Business owners can get so caught up delivering the work that they leave their invoicing to the last minute. Sometimes if, for example, a client hasn't signed off on a piece of work, you may want to delay sending an invoice. However, if the client is the reasonable reason for the delay, then you should invoice regardless on the day you are due to invoice.

Processes and policies, particularly those related to cash inflows and outflows, are the bedrock of your business. Build on them, and you will have a solid foundation when those rainy days come.

Tax Management NZ has produced a guide called Better Cashflow Management. You can download your free copy here.


Image: Cashflow chart

How active observation of the world around you can help cashflow

Image: Cashflow chart

Researchers in Italy have found that farm animals like dogs, cows and sheep can detect an earthquake up to 20 hours before it occurs. Perhaps it is ionisation of the air caused by rock pressures or that animals can smell gases released from quartz crystals before the quake. The lesson business owners can take from this is that actively tuning into the world around you can help detect and manage cashflow challenges before they occur.

Good cashflow management is more than formally monitoring, analysing, and optimising the net amount of cash receipts minus cash expenses in your business.

It is also about actively observing your customers, sector and community.

In a recent blog post, the director of the Newmarket-based accountancy practice BetterCo Advisory & Accounting, Alister Siew, warned business owners to be vigilant in the community because rising property prices were causing changes in neighbourhood demographics (usually towards the more affluent). For example, where once fast movers like a 'pie and an energy drink' were the go, a more affluent market may want gourmet pies and smoothies. 

Siew's advice was not to wait until the changes reflect in the cash register. Too often, businesses owners become aware of differences when it's too late because they are not actively monitoring the world around them. If a once-popular product or service suddenly slows down, investigate why this may be the case. It could be that your market is changing or a new competitor is on the scene.

You may find that a once regular and reliable client suddenly starts paying late, ignores your emails or changes their payment or buying patterns. It may be time to put trust aside and start taking action to mitigate your risk. Meet with them to find out what's going on. Speak to other suppliers.

The PESTLE Analysis

The PESTLE Analysis is one useful active monitoring tool to help you protect your cashflow and your business from a broader perspective.

Briefly, PESTLE is an anagram for Political, Economic, Social, Technological, Legal and Environmental factors which may impact your business. It helps identify threats and opportunities before they become significant.

Political factors: Politically, the Government of the day may be under pressure and looking for some wins. Is this an opportunity for you?

Economic factors: A slowdown in the construction industry, for example, may signal trouble for one or more of your clients. Step up your communications with the client and keep an eye on their accounts for any changes.

Social factors: The #MeToo movement, Black Lives Matter, working from home, rising anxiety and an ageing population are examples of social trends that may impact your business, your marketing or other business activities. Be aware and respond accordingly.

Technological factors: The digitisation of business, an increase in cyberattacks, and remote care solutions bringing doctors into the home are examples of tech factors that offer both threats and opportunities.

Legal factors: Changing legislation, for example, a shift from minimum wage to living wage and the Government's crackdown on property investors and speculators, will have implications for some. What will you make of it?

Environmental factors: It's not so much the effect that global warming, recycling and stainless steel straws or polluted waterways could have on your business, but how your markets, suppliers, and Government will respond to those developments that may impact your cashflow and your business. 

Keeping your finger on your cashflow is not only understanding your income and expenses. Understanding what's going on in the world around you positions you to plan better, respond faster and detect threats and opportunities before your competitors.


Solve your cashflow headache and get paid on your terms

Image: Credit card payment.

When you leave your local Mitre10 store with your new BBQ in tow, do you tell the cashier to invoice you on the 20th of the month? Have you tried that with New World, or PB Tech lately? It begs the question: Why should your businesses be any different?

The 'practice' of paying invoices on the 20th of the month is not something enshrined in law, anywhere. If anything, it is a convention. When you get paid comes down to the terms and conditions you negotiate.

Ahead of the 2020 election, the Labour-New Zealand First coalition government was vowing to tackle big businesses that make SMEs wait 60, 90 and even 120 days for payment, describing it is an unfair imbalance in power.

Government Minister Stuart Nash, a one-time small business owner, told media that when he was in business, he needed the money but he worried that if he hassled his clients too much, they wouldn't give him more work.

Xero's Small Business Insights 2020 reports that the average payment times are currently 25.1 days compared to 30.8 days at the peak of the COVID-19 crisis.

Payment terms of the 20th of the following month – in reality, the 25th or the 30th of the next month if you're lucky – are a significant contributor to the challenge of a healthy cashflow. It has a knock-on effect because it means that the company that gets paid late pays late.

At the start of a relationship, the sale is all-important. Terms and conditions are highly fluid because nobody wants to sacrifice the deal. Still, it comes down to whether or not you want to set yourself up to be a successful and stable business with the right clients or one that is desperate and clinging to every scrap that comes along.

1. How you begin sets the tone

At the start, establish good terms and conditions that will work for your business and make it a condition of sale that those terms are agreed. It may be that your terms are cash on delivery, seven days or 30 days.

The point is that traditions and conventions obligate your business only in so far as you allow. Decide what kind of business you want to run, set the terms and conditions that are a win/win for both you and your customers and stick to them.

2. Avoid surprises 

Make sure new customers understand and agree to your payment terms. Payment on the 20th of the next month is a modern convention, which means customers may assume that the 20th is acceptable to you – and it may be. However, if your payment terms are payment on delivery, seven days or even three days, make sure your customer knows at the start.

3. Reinforce your payment terms

Make sure your payment terms are on your invoice, along with your preferred payment methods like direct credit or credit card.

4. Follow up

It's tempting, for both small and larger businesses – owners and accounts people – to let a few days slide, especially if the relationship is new and bedding in but, remember, how you begin sets the tone of the relationship.

If payment is one day late, send a friendly reminder email. If the email reminder is not acknowledged, then follow-up to make sure the other party received the email and there has been no missed communication.

While you set your terms and conditions and it is not necessary for you to be confined by convention, the critical success factor to getting paid on time and staying on 'good terms' – no pun intended – with your client, is communication.

Communicate, communicate and communicate.