Skip navigation

Financial-Help-Thumb.jpgFinancial professionals offer small business owners assistance that extends beyond performing bookkeeping and accounting transactions. By choosing the right resources for each stage of the company’s growth, owners can ensure that they’re supported by the financial expertise necessary to attain their goals.


Click here to read the Inc guide titled Getting a Handle on the Financial Help You Need.


Be the Squeaky Collections Wheel

Posted by Inc. Oct 15, 2013

The old adage “time is money” is not just a figurative saying; when it comes to collecting past-due invoices, it’s literal as well. According to the Commercial Law League of America, the longer you wait to go after money that’s owed to your business, the less likely you are to collect it. About a quarter of receivables become uncollectible at three months delinquent, more than 40 percent at six months, and fully three quarters at 12 months past due. “A small collection problem can become a large collection problem quickly if it is put on the back burner,” warns Jill S. Marks, an attorney at Sage Law Practice Group, PC, based in Hampton, Virginia.


Uncollectible receivables represent a total write-off to the creditor, the worst type of all collections-related losses. But there are also costs associated with invoices that are eventually paid but well past the due date. This is known as the time value of money, and the formula to determine it is PV=C / (1 – Cost of Capital); PV is the present value of the amount owed, C is the cash collected, Cost of Capital is the business’s annualized cost of money or expected return, and n is the number of periods in the future the collection occurs.


More detailed information on the time value of money can be found here, but what it really boils down to is that “cash is fungible—if it doesn’t come from one source (accounts receivable), it’ll have to come from another,” says Mitchell D. Weiss, adjunct professor of finance and a board member at the University of Hartford’s Barney School of Business.


Insufficient collection efforts often are the beginning of a company’s cash flow constraints, says Clint Sallee, president of Fidelity Creditor Service, a collection agency based in Glendale, California. Another old adage is “the squeaky wheel gets the grease,” and in this context it means businesses are more likely to get paid when they take a proactive approach to collections. “Once you know that the customer is not going to make prompt and complete payment, don’t wait for something magical to happen,” Sallee advises. “Get proactive. Escalate the issue internally or up the chain of command at the debtor’s company—or both. If that doesn’t work, consider your external options.”


Elliott M Portman, an attorney and partner in the creditor’s rights department at Roe Taroff Taitz & Portman, LLP in Bohemia, New York, suggests these best practices to improve collection efforts:

  • Speed up the payment cycle; for 30-day accounts, call on day 31.
  • Tone and tenor are essential; don’t apologize about asking for what is legitimately due you.
  • Get credit card information when an account is opened; faster payment can offset transaction costs.
  • Make sure invoices are correct and complete.
  • Understand client payment cycles; time your invoices to arrive a few days prior to the day they issue checks.
  • Add payment options such as online.
  • Get invoices out faster; on large jobs, invoice segments as completed.
  • Know your customer’s stress points; if you are their key supplier, remind them during the collection call.
  • Revoke credit privileges for customers who default on terms.


Of course, business owners don’t want to alienate or offend customers unnecessarily, and that can be avoided by using a customer service approach on the first delinquent account call, suggests Jeff DiMatteo, president of American Profit Recovery, a Marlborough, Massachusetts-based collection agency with additional offices in Michigan and North Carolina. “Let the customer know you care and want to know if there were any issues with the service or product.” However, if the customer cuts off communication, that’s a red flag signaling it’s time to implement a more assertive approach. “If diplomacy is important to your business on your aged debt, make sure the collection agency you have working on your behalf is in line with your business values,” adds DiMatteo, who is also president of the New England Collectors Association.


Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified CPA, tax advisor, and/or other financial professional.

Article provided by Inc. ©Inc.

Financial-Transparency-Thumb.jpgPracticing open-book management creates competitive advantages that have been shown to increase employee engagement, productivity, and profitability. Launching the strategy presents some challenges, but the result is an increased sense of ownership throughout the organization, which can become a driver for improved financial results.


Click here to read the Inc guide titled The Benefits of Financial Transparency.

BuildingAWall_Body.jpgEvery business has to make certain purchases in order to continue providing the products or services around which it is built. Some of those purchases come with an added bonus: a valuable tax deduction that is often overlooked. The concept is known as depreciation, and you can claim it on many different kinds of equipment, vehicles, real estate, and other business property.


“Depreciation is legislated, and therefore legal, tax avoidance,” explains Eric Chen, associate professor of business administration at the University of Saint Joseph in West Hartford, Connecticut. The policy reasoning behind allowing a tax deduction for depreciation is to encourage businesses to invest in themselves, thus freeing up funds for hiring, purchasing more equipment, and expanding. “This is a public good. Jobs are created, and jobs mean taxes and productive workers who have money to spend. There’s economic value here,” he says.


Like any other business tax deduction, depreciation is governed by a set of rules; some are fairly straightforward, others more arcane, so it makes sense to work closely with your banker, accountant, and/or tax advisor when considering your options here. A simple rule of thumb is that if the asset will be consumed during the process of generating revenue, then it can be amortized against the sales it helps to generate, says Gene Osekowsky, coordinator at the Tennessee Small Business Development Center. “From a business point of view, depreciation is a non-cash expense transaction reducing the book value of the profit for tax purposes; it lowers your tax liability without using cash,” he explains.                                                                                               


Without depreciation
With depreciation
Costs -40Costs -40
Pretax profit 60Depreciation-20
35% tax -21Pretax profit 40
Net income $3935% tax -14
Actual take-home$39Net income $25
Actual take-home$46

“If you focus on net income, it looks like a better scenario without depreciation—$39 versus $26. But the funny thing about depreciation is that you don’t pay it to anyone; that’s why it’s called a non-cash expense,” Chen explains. “When you add the $20 to the net income of $26 in the scenario with depreciation, your take-home is now $46, leaving you with an extra $7 you can use to support your business.”


Howard E. Hammer, a CPA with accounting and consulting firm Fiske & Company in Plantation, Florida, says it is important for business owners to be familiar with these depreciation basics:

  • Depreciation begins when the asset is actually “placed in service,” not when it is purchased.
  • It can be applied to tangible (assets with a physical form, such as equipment, buildings, inventory, etc.) and intangible (assets that are not physical in nature, such as patents, copyrights, business methodologies, etc.) property.
  • Assets with a useful life of five years or more can be depreciated; shorter periods apply to certain assets.
  • The Internal Revenue Code allows several different ways to calculate depreciation, subject to certain restrictions. Straight-line (divide the cost of the asset by its useful life in years and claim that amount each year) is the simplest and most common, but accelerated depreciation, which increases the deduction in the early years of an asset’s life, and bonus depreciation, an additional deduction that can only be taken in the first year of an asset’s life, are allowed for certain assets and leasehold improvements subject to dollar limitations.
  • When a capital asset is sold at a gain, previous depreciation taken is recaptured at ordinary income tax rates before capital gains treatment kicks in.


“For a business that is cash-strapped, depreciation can go a long way towards providing a boost to much-needed working capital,” Chen says. “For owners seeking to sell their business in the short term, it can provide a way to take cash out without affecting the income statement.”


Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified CPA, tax advisor, and/or other financial professional.

Article provided by Inc. ©Inc.

Filter Article

By tag: