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Pay Your Creditors On Time

Why is it important to pay your creditors on time?

Most businesses have 3 main creditors, the Australian Tax office (ATO), Financial Institutions and other business organisation to whom you owe money. This month we are going to talk about the importance of paying the ATO and lodging your Business Activity Statement (BAS) on time.

BAS can be set up either month or quarterly and has a set due dates for each lodgement which can be confirmed by your Accountant, the ATO should be paid in full, in accordance with each quarter. Any late payment associated with the ATO is considered poor conduct and could impact your capacity to obtain government assistance or borrow money, this could affect your ability to purchase equipment and grow your business. You do not want to go down that path, so key take away, pay your creditors on time!

Below are some helpful tips to help lodge and pay on time;

– keep records of all sales, fees, expenses, wages and other business costs

– keep appropriate records, such as stocktake records and logbooks to substantiate motor vehicle claims

– reconcile sales with bank statements

– use the correct GST accounting method

– keep all your tax invoices and other GST records for five years.

Next, we are going to talk about Financials Institutions (equipment finance). The truth is, lenders talk. There are two main reasons why small businesses rely on borrowing money from financial institutions,

1. Because they want to retain as much working capital as possible

2. Because they have no working capital to spend.

Most businesses borrow money to purchase equipment, which results in a company growing their business and fleet at the same time. Very similar to the ATO, when a business executes a finance contract to complete their equipment purchase, they are committing to a legally binding document to pay back the borrowed funds per month on a scheduled date over a set period of time. 

Failing to pay you schedule payment each month (even if it is only one day late) will result in a late payment also known as an arrear, on your credit file, credit reference and bank statements. Late payments will directly affect your ability to obtain additional funding form any financial institutions which will impact the growth of your business. It will also affect your credit rating and capacity to obtain ‘cheap finance’, as this is reserved for businesses who can demonstrate good conduct, aka loan payment history. 

Please see below some helpful tips to ensure your loan payments are paid on time;

– Set loan payment to be direct debt the day after you receive income from your customers

– Have a minimum balance amount in your bank account. This will help prevent overdrawn fees & late payments.

– Set reminders on your email or phone, two days before the payment is due

– Monitor your Creditors report in your accounting system each day, having funds available for each payment as it falls due.

Now, we are going to discuss why it is important to pay other businesses to whom you owe money! Very similar to your lender relationships, if you don’t have surplus working capital or access to money through Financial Institutions than you will not be able to grow your business through equipment purchases. Other businesses play the biggest role in the continued growth of your business, as they form part of the service you provide your customers.

As business owners, most of you have been on the other end of not being paid on time and the impact that can have in your day-to-day operations. Every day you are not paid you lose TRUST in that business to pay you on time, resulting in a broken relationship where you may never deal with them again. This is how your creditors feel when you don’t pay on time, it is tough to build a successful business without TRUST and even harder without relationships, this works both ways. 

Please see below some helpful tips to ensure your other business relationships are paid on time;

– Follow up on Invoices. 

– Monitors your Creditors report in your account systems each day, having funds available to pay your business relationships.

– Reward prompt invoicing.  

– Write payment terms in contracts so all parties are aware when invoices are due.

The Australian Tax Office (ATO), Financials Institutions and other Businesses to whom you owe money all form part of your business relationships. When you pay your creditors on time, you will give your business the best chance of continuing its growth and being successful now and into the future. 

If you struggle in this area and want more advice on how to pay your creditors on time, give us a call!

Chevron Finance proudly supports those across Brisbane, Melbourne, Sydney, Perth and wider Australia with reliable machinery finance solutions, founded on flexibility and transparency. With over 20 years of experience in the field, we are backed by the expertise and insights that allow us to provide best-in-class, tailored solutions to our valuable clients. Chevron Equipment Finance was established to provide a more personalised service to meet the needs of growing small and medium businesses that have been under-serviced by their bankers for years. We pride ourselves in acting with a sense of urgency in everything we do and our can do culture ensures service and results we can be proud of. https://chevronfinance.com/

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