Posts tagged: Accounts Receivable

Preparing for Taxes

By , January 19, 2013 1:59 pm
Image provided by Shutterstock

Image provided by Shutterstock

Preparing your expenses and sales receipts for filing your taxes can be a nightmare. Do you have your company related papers filed in a shoe box? Or, are you organized and enter your information in bookkeeping software like QuickBooks or Peachtree?

Whatever your preferred method of filing your information is, you have to assemble it for the tax preparer or accountant. What do you have to give him? Here is a list of the documentation:

1. Receipts for the purchase of equipment. These are your assets, and assets are depreciated over time. Various types of equipment have different rates of depreciation. Your accountant will know what those rates are, and he will be able to calculate your depreciation expense. Additionally, certain purchases of capital equipment will give you a tax credit. So it is worthwhile to have your accountant review this information.

2. Payroll information is important. Providing a summary of Social Security and Medicare taxes, health benefits, if any, Federal, state and city taxes for each employee and the Treasury payments made are necessary to ascertain your payroll expenses for the year. Any payments made to independent contractors should be reported on Form 1099.

3. Any draws that you have taken from the business and any estimated taxes you have paid will assist the accountant in preparing your tax liability.

Image provided by Shutterstock

Image provided by Shutterstock

4. You will need to give the accountant a list of accounts receivable that have remained outstanding at the end of 2012. He may ask you about the probability of collection of these accounts and may want to indicate whether these are probable or noncollectable leading to a bad debt expense. He may also want to know whether you have “earned” the revenue you have collected in the year. This refers to the Matching Principle in accounting – if you haven’t earned the revenues but have collected it, you will have an accrual on moneys collected but not earned.

5. In this vein, you will also need to give the accountant a list of those accounts payable that you have not paid at the end of the year. The numbers in 4 and 5 will have an impact on your Working Capital.

6. It will be necessary to also keep an eye on your inventory. How frequently do you replenish your inventory? Inventory Turnover is critical to learning whether you will need to reduce the selling price or if you will have a write-off of obsolete inventory.

7. If you have entered into any contracts with vendors or suppliers and independent contractors it would be wise to provide the accountant with a copy of those contracts so that he can see any anticipated revenues or costs associated with them.

Image provided by Shutterstock

Image provided by Shutterstock

8. Before providing you with the completed tax returns, the accountant will want to review them with you before finalization to make sure that he has included everything. Take this conference seriously. He should offer you advice on the conduct of your operation and indicate whether you need to do more to mitigate your tax liability or improve the way you are running your business.

By the way, if you are using a software package and your accountant uses the same program, you can provide him with a download of your files so that he can manipulate the information as he needs to. This will save him a lot of time in preparing your information.


Margo Moore teaches BE 261 Starting a Small Business, CEO 001 Setting a Course for Your Business, CEO 002 Knowing Your Market, and CEO 003 Formulating Your Financial Strategy.

Why Cash is King

By , December 15, 2012 2:19 pm

You have all heard the expression “Cash is King”. Did you ever think that it applies to the way you manage your business? Well read this!

As you manage your business from day-to-day you need liquidity, that is cash. Cash is required to pay your bills from suppliers to your utilities bills and even your employees. So, where is this steady flow of cash coming from? Your customers!

Your accounts receivable levels are important to watch. Bills are usually collected on a 45 day basis. Some customers may even pay sooner than that. Those customers are gold.

You should indicate clearly on your invoices what the terms of payment are. These are usually 10/20 net 30, meaning that if the bill is paid within 20 days, then the customer is entitled to take a 10% discount on the amount due. You benefit by collecting on that invoice sooner rather than later and having the money to run your business.

But consider the customer who pays in 60 days. This customer is costing you money! You are actually financing this customer to the tune of 36% a year. That is an incredible financing charge. Did you ever realize that you were becoming a bank by not collecting on these invoices? Therefore, it is critical to your cash flow to collect the amounts due you promptly. Hence, the time value of money. A dollar today is worth more than a dollar tomorrow.

A good tool to use that can be provided by your bookkeeper is the Aged Accounts Receivable Report. This report will indicate how long your invoices are outstanding and which ones to watch closely for delinquency. Your current ratio will be improved with monitoring.

Follow-up calls to customers are important to remind them that the invoice is due. These calls will also reveal to you whether the order is received in good order and if the customer is happy with the shipment. Sometimes a customer will not pay on an order that is unsatisfactory because he is a small business and he is just too busy to make that phone call to you; he just holds the goods instead of returning them to you.

If a customer is strapped for cash and cannot pay the total amount of the invoice, then you must ask him to pay something right away. Making an installment plan with him is beneficial to you and to him. You must collect something in order to make it easier for you to meet your cash demands, and he has just reduced the amount outstanding on that bill.

Now you understand why “Cash is King”.


Margo Moore teaches BE 261 Starting a Small Business, CEO 001 Setting a Course for Your Business, CEO 002 Knowing Your Market, and CEO 003 Formulating Your Financial Strategy.
She is the author of Love and War, the Human Side of Business.

A Lesson in Factoring

By , April 7, 2012 12:54 pm

Do you have a lot of money your clients owe you in the form of accounts receivable? Do these invoices take time, like 60 days or more, to get paid? Are you in need of cash to finance your next production line? You are not a good credit and are not able to get a bank loan. What can you do?

Factoring may be the answer. Factoring means that you sell your accounts receivable to a factor or third party source at a discount to provide funding. It is a short term solution to your working capital problem.  It may help you get on your way to traditional financing.

Here is how it works. You sell your invoices to a factor at a discount and these invoices act as collateral. You would typically receive 80% of the invoice value upfront. You will receive the balance remaining less a factor fee once your client pays the factor. The fee can be paid in any number of ways, but it usually nets out to be about three to five percent of the invoice value. Factoring is not a loan and does not show up on your balance sheet. It is the sale of an asset; therefore, you have no liability here.

To qualify for this factoring, your invoices have to be free and clear of any liens. This means that no other company has a claim on payments when they come in. Your customers must also be creditworthy. Why? – Because the factor will rely on their good credit and ability to pay the invoice quickly rather than on your credit history.

Learn how the factor deals with your clients during the collection process. Does he send out dunning notices with an indication that the factor is to be sent the payment? If the client does not pay your invoice, the factor may ask you to pay back the money he paid you on the invoice plus a fee. Something that is called recourse factoring.

If you decide that you want to seek out a factor, do your comparison shopping by looking at factor fees and the amount of the discount on your total invoices, a deposit or application fee, the advance rate and monthly minimums should also be considered. Factors will not work with start-ups; you need to have a large amount of accounts receivable for the factor to work with you. You can find factors in the telephone directory or in industry trade publications. Your banker may be able to refer you to a factor, but decide on a factor that knows your industry, can customize a service package for you, and has the financial resources you need.

Margo Moore teaches BE 261 Starting a Small Business, CEO 001 Setting a Course for Your Business, CEO 002 Knowing Your Market, and CEO 003 Formulating Your Financial Strategy.

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