Did you know you still have to pay tax on uncollected debtors? This is because you pay tax on your sales figures irrespective of whether you have collected the cash.
This can also apply to GST. If you’re registered on an invoice basis, you will be required to pay GST on any applicable income, even if you haven’t received payment yet.
To avoid paying tax on uncollected debt, here are some quick and easy-to-implement debt collection strategies to ensure your hard-earned money is sitting in your bank account:
- Agree on your payment terms at the time of sale.
- Get the Terms of Trade signed off in writing before you start the job.
- Make payment as easy as possible for the customer. This could include setting up digital pay now solutions that allow online payment via a credit/debit card.
- Look into solutions like Xero’s new tap-to-pay, which allows you to take contactless card payment right from your phone.
- Ask for a deposit.
- Invoice as quickly as you can.
- Change your payment terms to 7 days or ‘on delivery.’
- Send statements with only two columns – current and overdue.
- Schedule overdue reminders and follow up the day after the due date. Xero and other bookkeeping software have functionality to set up automatic reminders and bulk statement sending.
- Use a debt collector sooner rather than later – the longer you leave it, the harder the debt will be to collect.
- Stop credit for customers who are late on payment.
Take action! Reflect on how many of these ideas you’ve integrated into your business, and check how many you’re actively applying. Don’t let procrastination hold you back – address your debtors today!
If you need help implementing any of these ideas into your processes, please feel free to contact us to discuss this further.