Mark Wrigley – smart money

A series of regular advice columns from Mark Wrigley, Peterborough’s smartest accountant (he’s got a nice suit)

April 2012: Getting paid

When you keep your side of the bargain with a customer, it is only fair that they should keep theirs by paying you… and paying you on time. Sadly, as everyone in business knows, this doesn’t always happen.

How big is the problem?

If your profit margin is 10 per cent, and a £5000 invoice is not paid, then you will have to make another £50,000 worth of good sales to make up the profit lost on the one bad sale. Shocking, isn’t it?

Why does it happen?

In their 1999 survey, business finance specialists Alex Lawrie asked UK companies why they paid invoices late. The top ten reasons given by credit controllers were as follows:

23%        Waiting for the cheques to be signed

22%        Invoice lost

16%        Cashflow problems

15%        Person dealing with it is unavailable or off sick

6%          Cheque is in the post

5%          Waiting for the cheque run or for a new cheque book

3%          The invoice is being disputed

2%          We pay on 60/90 days – not 30 days

2%          Missed the payment run

On a lighter not, some of the more bizarre reasons given by credit controllers when refusing to pay included:

• “The owner has been buried with his cheque book”
• “All names are put in a hat. If yours is drawn out you get paid. If not it stays in the hat for next month”
• “I do not speak English”
• “We’re in the middle of an armed robbery”
• “Not now, its the office party”
• “The tide is out and the owner is unable to get in to pay cheques”

What can you do about it? Some unusual ideas that really work….

Prize draw – One business supplier in the North East holds a monthly prize draw. Every customer who has paid their account on time goes into the hat, and once a month a winner is drawn out and treated to a meal for two at the best restaurant in town. The scheme costs about £1200 a year to run. And not only does it greatly improve cashflow, but it also creates a talking point and makes customers smile.

Big prompt payment discounts – Most prompt payment discounts don’t work because the 1%-5% discount traditionally offered is not enough to galvanise customers into action. So a Leeds based business we work with gives its customers a massive 33% settlement discount. But just look at how it does it…. it’s main product has a list price of £3000, which it is usually prepared to discount down to £2000. But rather than make that £1000 reduction a “sales discount”, it makes it a “prompt payment discount”.

In other words, the invoice shows  the price as £3000, but also contains a line that deducts the £1000 and reads: “This £1000 prompt payment discount may only be deducted if payment is received at our office no later than…” followed by a date exactly 7 days from the invoice date. As a result the vast majority of customers pay within 7 days. Why not turn your sales discounts into BIG prompt payment discounts in this way?

Increase your prices – Another business we know wrote to all its customers telling them that that it was increasing all of its prices by one ninth (ie 11.11%). But in the same letter it also explained that customers paying within 14 days of the invoice date would be able to deduct 10% from the invoice value. Nobody complained, and most of its customers now pay within 14 days. What’s more, and here’s the amazing part, customers now actually come in to say “thank you” for being allowed to pay less by paying early!

Of course, when you look at the maths you see how clever this particular strategy is. Initially a £100 item goes up to £111.11. So those who pay after 14 days pay the full £111.11. While those who pay within 14 days pay £111.11 less the £11.11 prompt payment discount – which comes back to the £100 they used to pay before the price rise. So either the business gets paid more or it gets paid more quickly – and either way its owners are happy!

Prompt payment benefits – Discounts are not the only way you can motivate and reward customers for paying you promptly. There are many other benefits that you could reserve only for those who pay on time. For example, you could give them priority when booking service and repair visits, free upgrades to express delivery, or even free delivery, lower minimum order quantities, extra technical support, free helpline, special offers on upgrades, discounts on their next purchase, access to a special section of your website, extended warranty terms, membership of a user group, advance notice of new products or whatever else is most relevant in your case. The key is to make these benefits exclusive to customers who pay on time, because that way many more of your customers will pay on time.

Prompt payment club – Taking the last idea one step further, why not bundle all those exclusive benefits as part of a prompt payment club – which customers are automatically members of if they pay on time. And perhaps give it a name like “Integrity” – since that helps all your customers to see that, when they demonstrate high integrity by paying you on time, they will get special priviliges. It will also help them to realise that by paying late they are acting without integrity.

Payment upfront – Another powerful approach is to insist on payment upfront. A useful way of explaining this is to say: “In order to ensure that we have sufficient resources available to continually improve the level of service you receive, our policy is not to ask our good clients to subsidise the handful of clients who abuse credit terms by not paying promptly (and, in some cases, not paying at all!). As a result our standard terms are that payment is due when we start the work.”

Offer finance – Some retailers (car dealers and white goods retailers in particular) offer to arrange finance for their customers. But most others don’t. And that is all the more strange considering that finance allows the business owner to make more sales (because more people will be able to afford to buy), get paid quickly, and perhaps even share in the profits made by the finance company. There are now many specialist finance companies offering many different types of finance options. For example many professionals now offer their clients the opportunity to pay in instalments by signing a simple agreement with a finance company – and because it is what is know as “recourse financing”, there are no processing delays, very low rates of interest, and the finance company guarantees never to turn down an application. Why not explore whether you can arrange something similar for your customers?

Using humour – Humour is a great way to defuse difficult situations – including asking to be paid. Some businesses use funny cartoon postcards and faxes to chase debtors. Other use amusing letters. For example, the text given below (which works best as an e-mail, but can also be used as a letter) gets extremely good reactions and results.

Dear Fred

My name is BRIAN and I’m the Bloggins & Co computer.

I’ve got some good news, some really good news and some even better news for you.

The good news is that, at the moment, only you and I know that your invoice for £XX (ref: XX, date) is overdue.

The really good news is that I am not programmed to tell [insert partner’s name] about it for another seven days.

And the even better news is that I’ve discovered a way for us to sort it out between ourselves without involving him.

All you need to do is send me cheque in the next seven days and I will erase the overdue record from my hard drive. That way no-one else need ever know.

Yours etc

BRIAN

Finally, don’t forget to ask us for a copy of our “Getting paid checklist” – since it contains 43 extra ideas to help you collect every single penny you are owed.

Mark Wrigley is a client manager at GreenStones.

January 2012: What are you worth?

Most business owners pay an accountant each year to construct a balance sheet of assets less liabilities at a certain date.  This can be a very useful tool to analyse the business net worth, cash flow requirements and liquidity. Clever business owners also construct a summary personal balance sheet to measure their personal net worth.  A personal balance sheet should record all personal assets including the net worth of the business less all liabilities.

Standard assets would be residential property, businesses, savings, pensions, shares, cars and other assets. Standard liabilities could be overdrafts, loans, mortgages.

The net worth assets less liabilities becomes a very interesting figure and not many people are fully aware of theirs.  It should be done on a regular basis to measure performance one year to the next.  Assets, businesses and investments are then monitored for success and plans can be adapted accordingly.

Are you happy with your net worth? Do you have a plan for increasing your net worth in the future? Is the net worth likely to be enough to allow you to retire when you want with the amount of money you would like? Do you know the steps for increasing the net worth of your business?

Mark Wrigley, FCCA, GreenStones Accountants 0845 466 7000.

November 2011: Successful Selling

The Coventry RICOH Arena, home of the Sky Blues, hosted the annual 2011 conference for the Institute of Sales Marketing and Management and this month I was privileged enough to attend on behalf of GreenStones. This is the second time we have attended the event and would recommend it to anyone wanting to improve their sales and marketing.

The first speaker was Don Hutson from America who helped demonstrate how to conduct sales negotiations based upon selling value not price dropping.

Dr Graeme Codrington was very interesting when he showed the differences between the UK generations and how sales techniques that helped some buy would not be of value to another generation.

Sharon Drew Morgen challenged those present to help the buyer, not just by selling, but they must consider and facilitate the buying process.

The former Deputy Prime Minister Michael Portillo was very entertaining with stories from politics but also helped explain the importance of selling in today’s economy to lead the country from recession.

Gavin Ingham gave us his 5 P’s of great presentations: Positioning, Planning, Practice, Passion and Performance. Gavin had the top tip from the day for me, “Tell people what you are going to tell them, tell them and then tell them what you have told them.”

Alice Beer from BBC Watch Dog demonstrated how ethical sales should always be considered company policy and how in the long term it will improve the company image and lead to more sales through recommendations.

Overall the conference was excellent value for money and I am already using several of the techniques demonstrated.

I will be attending the conference next year, please contact me if you would like me to source you a ticket also to come with me. The Institute also produces a bi monthly magazine, “Winning Edge” if you want to keep abreast of the latest developments in sales and marketing.

Mark Wrigley is a client manager at GreenStones.

October 2011: Do you really want to give the taxman £447,675?

Frightening isn’t it!

That’s how much on average someone earning £25,000 a year pays in taxes over their lifetime.  This is an average when you include income tax or self employment income tax or corporation tax, national insurance, value added tax, stamp duty, inheritance tax, fuel duty, the list is pretty much endless these days.  If you earn more than £25,000 in business or employment the tax bill will be even larger.  We all have to pay our fair share of taxes, but there is no reason why you should pay more than your fair share.

GreenStones would like to offer you a copy of “TaxAbility” your easy to use tax busting checklist.  In just 7 pages it reveals 57 powerful ideas to shave many pounds, perhaps even many thousands of pounds off your tax bills.  Just think, even if you can only shave 5% off your tax bill, that saving could be an extra £22,384 in hard cash to invest or spend and enjoy during your lifetime.  If you earn more than £25,000 in business or employment the potential tax savings could be much larger.

GreenStones have many examples when we have saved clients far more. This is an amazing opportunity and will only take a few moments of your time.

Mark Wrigley is a client manager at GreenStones.

August 2011: HMRC to educate new businesses

If you have recently started a new business you may be in line for a call from HMRC under their new pilot scheme. HMRC have announced a telephone education strategy in which they will call new business owners “to offer to talk them through some of the main things they need to know as a new business and to signpost them to the available help online”.

These telephone discussions are aimed to be general as the staff making the calls will not have access to the individual’s tax affairs or any of the live systems. The topics which can be discussed include most areas of business tax, including record keeping and the construction industry scheme.

You may still get these calls even if you have appointed a professional adviser although we understand that HMRC will limit the number of questions they ask in these circumstances to areas which are not covered by their adviser. It is HMRC’s aim to provide these telephone calls for purely educations purposes, but if having received such a call there is anything you would like to discuss further, please feel free to give us a call on 01733 371180.

Mark Wrigley is a client manager at GreenStones.

May 2011: VAT Invoice Accounting or VAT Cash Accounting?

The date for Value Added Tax (VAT) on a sales invoice is declared on the VAT return period in which the invoice is issued and VAT on purchases can be claimed in the VAT return period in which you receive the purchase invoice, this is called VAT Invoice Accounting.

If you select to use the VAT Cash Accounting Scheme the VAT is declared and paid in the VAT return period in which you receive the money when your customer has paid you.  Also VAT cannot be claimed on your purchases until you have paid for them.

Cash accounting can be beneficial for your cash flow especially if your customers are slow to pay.  It is also good for cash flow and administration purposes if you have bad debts. Standard accounting for VAT, you have to pay the VAT on the debt even if you never receive the payment from your customer and then later reclaim under the VAT bad debt rules.  Using the Cash Accounting Scheme, you do not pay the VAT if your customer never pays you.  The Cash Accounting Scheme may not be for you if you regularly reclaim more VAT than you pay, or if you buy a lot of goods and services on credit.

You cannot use cash accounting if:

• you are not up-to-date on your VAT Returns and VAT payments
• you have been convicted of a VAT offence or charged a penalty for VAT evasion in the last year
• your VAT taxable turnover is over £1.35 million per year

Maintaining good records is essential with accurate listing of current debtors and creditors.

Mark Wrigley is a client manager at GreenStones.

January 2011: £5,449 tax saving on a new BMW. Happy new year!

I HAVE found a really useful car website www.carpages.co.uk/co2/ with all the required information for analysing company cars. For example the BMW 3-series 320d Efficient Dynamics model has a CO2 emission rating of 109g/km meaning it could qualify for 100 per cent capital allowances.

New cars purchased after 1 April 2009 with CO2 emission ratings of less than 110g/km if part of the company initial annual investment allowance could be entitled to 100 per cent capital allowances. This could effectively save 20 per cent corporation tax (small companies rate) on the price. For example, the BMW model above list price £27,245 would reduce corporation tax by £5,449.

The critical factor is the CO2 emissions rating of less than 110g/km as any higher would result in only 20 per cent capital allowances or even 10 per cent if over 160g/km.

This is new technology however and only a few car makers have achieved this level so far. May be worth waiting another year for more options and even better cars and engines. There would still be a car benefit and a possible fuel benefit also for the employee and the company, given the low CO2 rating this would be fairly sensible.

Mark Wrigley is a client manager at GreenStones.

December 2010: could you have a lost bank account?

DID you realise that there are billions of pounds of unclaimed financial assets in the UK: old bank accounts, pensions, life assurance and investments. Yet any cash that is yours should still be available for reclaiming all you need to do is fill in a form – and it is free to do all you need to do is log onto www.mylostaccount.org.uk.

This is a FREE service brought to you by the British Bankers’ Association (BBA), the Building Societies Association (BSA) and National Savings and Investments (NS&I) bringing together their three tracing schemes into one website and one application form.

All three provide comprehensive coverage of their respective areas:

• The BBA scheme covers 43 banks that take retail deposits in the UK
• The BSA scheme covers all 50 UK building societies
• The NS&I scheme covers all National Savings and Investments products as well as the old Post Office Savings Bank accounts.

So for ten minutes of your time it could be worth having a quick look, a lost account of your own or an inheritance from a deceased relative or family member there could be money just sitting there waiting for you!

Mark Wrigley is a client manager at GreenStones.

November 2010: OK recovery, so what now?

THE dictionary: “An improvement in the economy marking the end of a recession or decline.” OK so the economy is getting better, great, but the real question is what will it take to get back what was lost? Well the politicians and the banks you might say have a lot to do. So what part do small business owners play in the recovery? A very big part.

If you want your business to recover or gain fully from the economic recovery the most important thing is to take action. Please remember, action is not learning, action is not knowing, action is not talking, action by you not someone else is required and that action is now not later.

What action? Well more profit, but profit is just the result of:

More income. Make sure your prices are right and increased where possible. Contact all your clients to check they are aware of all your services/goods and ask them for a referral at the same time. Get all your team trained in selling and play a game.

Less Costs. Check your biggest five costs and review. Be prepared to ask for discounts or deals, payment terms, cut wastage, review all terms. There must be some efficiency savings in terms of more outputs from fewer inputs in your processes, review systems and seek best practice and best service.

Mark Wrigley is a client manager at GreenStones.

October 2010: how to explode with growth (sounds messy)

EVERY business is made up of a series of processes that converts inputs into outputs. One of the keys to making your business more successful is to identify your most important processes, and then do everything you can to improve that process/system so that you get more output from every input. It’s as simple, and as difficult, as that!

So look at each process. Understand how it works and what it delivers. Decide whether you need it. And, if you do, experiment with ways to improve the rate at which it converts inputs into outputs. What are the most important processes in your business?  What ideas, techniques, systems or even new words will improve that key process?

Unfortunately the answer is “you won’t know until you try.” But even trying out new ideas isn’t enough, because you won’t know whether the trial (or ‘test’) has been a success unless you measure (or even better score!) it properly. What you can measure you can test, and what you can test you can improve.

Mark Wrigley is a client manager at GreenStones.

September 2010: tax credits

We are still spotting clients that are entitled to tax credits but have yet to make a claim. This may be due to a dip in business income from the recession or changes in other circumstances.

Tax credits are payments from the government that you may be legally entitled to. If you’re responsible for at least one child or young person who normally lives with you, you may qualify for Children’s Tax Credit. A separate tax credit is available if you work, but earn low wages, you may qualify for Working Tax Credit.

Tax credit claims can only be backdated for three months so make sure you claim early. If your circumstances change it can affect the amount of money you should be getting, so please ensure you contact HMRC as soon as possible. Tell them about all changes especially income changes, give accurate estimates where possible.

Mark Wrigley is a client manager at GreenStones.

August 2010: benchmarking

WOULD you like to copy the successes of the most successful UK businesses in your industry?

Well you can with benchmarking. Benchmarking enables you to compare your performance against other businesses within your sector. It tells you what you are doing well, and less well compared with other similar businesses. It will highlight your business strengths and weaknesses and the opportunities and threats to your business. It can be a great tool to start business planning for the next accounting period.

It is an extremely valuable management information tool. So valuable, in fact, that I believe every business should access high quality benchmarking information every year. There are various benchmarking products available, some obviously are better than others. The key is to measure your business against similar sized businesses, in exactly the same business sector, perhaps the same geography area.

Benchmarking is a great first step in finding the gaps in your performance. And it will help you to identify and focus on your weaknesses, which may turn out to be easy fixes and quick wins.

Mark Wrigley is a client manager at GreenStones.

June 2010: Cry Freedom!

The coalition government has launched its public consultation on which laws the public would like to change. The idea is to create a more open society, restore Britain’s traditions of freedom and fairness. To free society of unnecessary laws and regulations both for individuals and businesses.

Now is your chance to have your say, so take this opportunity and make a difference. The site gives you the chance to suggest ideas and rate ideas on how we can do this. Your ideas will inform government policy and some of your proposals could end up making it into bills to bring before Parliament to change the law.

So if there are any laws or regulations you’d like to change, then first, check if there are any similar ideas here already and then add your comments to it and rate it to move it up the list. If it’s not here, then add it. Try to suggest ideas for removing laws and regulations, rather than ideas for creating them, so the law becomes less complex and intrusive.

Any tax ideas I would appreciate a warning in advance to pro actively advise our clients!

http://yourfreedom.hmg.gov.uk/

Mark Wrigley is a client manager at GreenStones.