Cash Flow Management - Debtors

No cash in the bank! Scrambling around on the 25th of every month to find money to pay Salaries and VAT! The Income statement shows a profit every month and year but still the cash is not there to pay these crucial amounts due to keep your business alive.

Cash flow is a crucial element in every business. Constant management is essential. Over the next few Newsletters we will discuss a few tips to help improve cash flow in your business.

To do the work and invoice a debtor does not mean the business has earned the money. Generating a turnover of five million a year from debtors who will not pay, is not worth any "money in the bank". Bad debtors impact on cash flow. When viewing the age analysis monthly, make sure the ratio on the 60 days plus is below 10% of the total debtors. If possible do not allow debtors go over 30 days. If a debtor is consistently over 30 days without a prior arrangement in place, consider whether the debtor is worth keeping.

1. Screen clients before commencing work. Make sure they have a good credit record.
2. Obtain full clients details early.
3. Invoice the debtor. (How often has a debtor not actually been invoiced?)
4. Send statements regularly. Most debtors forget they owe money. Remind them regularly. Twice a month if necessary.
5. Know who the contact person is. In some companies or government departments there may multiple contacts. Keep their phone numbers.
6. If a debtor has not paid within 30 days phone them. Chase up the debt straight away. The longer a debt is left outstanding the harder it will be to recover.
7. Debts that are older than two years are generally prescribed. Write them off. You have very little chance of recovering it. Concentrate on debtors where you can recover the funds.
8. Review bad debts annually. Consider whether they should be written off.
9. Do not do new work for a debtor who will not pay unless there is an arrangement in place. If they are not paying now it is unlikely they will pay later.
10. 150 day debtors should be handed over to a collections department to recover. The debt should be written off in your accounting and placed on the collection debtors account for recovery.
11. Consider an early payment discount.

A good debtors book will give an accurate reflection of what is expected in cash flow over the next few months. Knowing debtors and there ability to pay on time helps to plan cash flow.

Debtors that pay regularly and on time are the debtors worth keeping.

PAYE EMP501 Submissions

The EMP501, PAYE reconciliation, should be submitted to the South African Revenue Services (SARS) by 3 June 2011.

Penalties could be imposed by SARS for late and incomplete submissions of the PAYE reconciliation. A request for remittance of the penalty is possible, if you can prove the circumstances causing the non-compliance were beyond your control.

The submission experience has improved this year. There were some hiccups. For example, the numerous upgrades of e@syFile^TM. Users of e@syFile^TM look forward to the smaller upgrade bursts which are quicker to download and don't require a complete uninstall and reinstall of the program, to make sure upgrade is complete. The hours and gigs used downloading e@syFile^TM software this year at least made internet service providers happy.

The income tax synchronisation system was faulty. Registration of new income tax numbers could be done via e@syFile^TM but often the numbers did not populate the income tax number field.

There is a drive on to have the PAYE reconciliation completed monthly. This will be phased in over the next few years. We have experienced the mid year and end of year submissions. Tax payers will need to make sure that good systems are in place to keep up with accurate submissions on a monthly basis.


Review www.sars.gov.za for more information.

Budget 2011/2012

BUDGET 2011/2012

South African budget speech 2011, presented by Finance Minister Pravine Gordhan, did not hold many surprises. There are positives for the country with a strong focus on job creation, improving education and health systems.

Highlights

1. R10 billion for job creation, small enterprise development and youth employment;
2. R10.4 billion for public transport, roads and rail infrastructure;
3. R9.5 billion to increase enrolment at FET colleges and skills development;
4. R8.2 billion for upgrading school facilities;
5. R7.9 billion to improve primary health care, revitalise hospitals and combat HIV and Aids;
6. R7.2 billion for human settlement upgrading, municipal services and water infrastructure;

• Taxable income (R)
• Rates of tax
• 0 – 150 000 18% of each R1
• 150 001 –235 000 R27 000 +25% of the amount above R150 000
• 235 001 –325 000 R48 250 +30% of the amount above R235 000
• 325 001 –455 000 R75 250 +35% of the amount above R325 000
• 455 001 –580 000 R120 750 +38% of the amount above R455 000
• 580 001 and above R168 250 +40% of the amount above R580 000

Rebates of Tax
Primary R10 755
Additional (Persons 65 and older) R6 012

Tax Threshold
Below age 65 R59 750
Age 65 and over R93 150

Growth

GDP for 2011 is expected to be 3.4 per cent, while 4.1 per cent is projected for 2012.

Inflation

Headline inflation rate January 2011 is 3.7%. (Key findings: P0141 - Consumer Price Index (CPI), January 2011 ) The Finance Minister expects inflation to remain within the 3 – 6 per cent range, increasing to the upper end in 2013 tracking the strengthening economy. Increasing Oil and food price are a concern to consumers.

Forex, Rand Strength

The strength of the Rand in the past year has affected manufacturing and other business sectors. Measures to moderate the potential affect of capital inflows have been implemented.

Division of Revenue

With all the emphasis on the poor service delivery in many communities in South Africa, it is disappointing to see that municipalities will only receive less than 9 per cent of nationally raised revenue allocation.

Creating Jobs

“development first, and not dependence on welfare.” is the statement of the President emphasised by the Finance Minister. A budget to accelerate employment has been set.

Points that could affect us:

1. Expanded public works, including community based projects, environmental and social programmes and maintenance of roads and infrastructure;
2. Tax incentives for manufacturing, focus job creation;
3. Small enterprise development initiatives, including a focus on employment activation;

Keep an eye on dividend tax proposed for April 2012.

In closing, there is stability and a long term growth path in the Finance Ministers plan, with high expectations. We will be affected positively and negatively in the next year by these decisions. More importantly, how can we affect the community around us, with the resources we have. We can assist by creating employment and helping those in need.

Travel Allowance – Application of amendments to tax

If you receive a travel allowance or use a company vehicle, you need to check that the tax is being applied correctly. Amendments, to tax on travel allowances and right of use of motor vehicle, have been made by the South African Revenue Services (SARS) from 01 March 2011. This article will review the tax implications of the various applications.

Travel Allowance

A basic travel allowance pays the employee the amount expected and calculated, as a reasonable estimate of what the employee is expected to travel in a month, given the nature of the job. This travel allowance is expected to cover the fuel and repairs and maintenance cost of the employees vehicle that is used for business travel. As from March 2011 travel allowances will be taxed at 80%. The employee is then expected to maintain a Travel Log Book. The log book will be used to prepare the employees income tax return. On assessment by SARS the tax could be reduced and refunded to the employee. If at least 80% of the use of the vehicle will be for business use, then 20% tax could be used. If unsure, use the 80%.

Log Book

A log book is a record of an individuals business travelled kilometres. There is an opening and closing odometer reading, for the year, and the details of all business travel. Private travel is not needed unless one wishes to prove private travel. Even so it is possible to prove this by calculating the total difference of opening, closing and business kilometres.

Right of Use of Motor Vehicle

A vehicle owned by a business and used by employees will result in a tax on right of use of vehicle. This applies to both the employees and owners of companies. The right of use is a taxable perk. The perk is calculated as follows: 

• 3.5% of the determined value of the vehicle at the time of the commencement of use. This includes the purchase price including VAT and the value of the maintenance plan. This value excludes finance charges;
• If the determined value includes a maintenance plan then 3.25% may be used;
• No reduction can be claimed if the employee carries the cost of fuel and maintenance.
• Where the company leases the vehicle, the retail market value of the vehicle, including VAT will be used.

The perk is then taxed at 80% or if the personal use of the business will be less than 20%, then the perk can be taxed at 20%.

The right of use of vehicle does not apply to pool vehicles.

Make sure you:

• Keep a log book of all business travel;
• Check that the correct tax is being applied;
• Don't forget to tax the fringe benefit, right of use of motor vehicle.

Business Soul Accounting Blog

Business Soul Accounting Blog will be used to update clients on changes in accounting, tax and business management.

We hope to reference clearly to relevant articles and information to point readers in the right direction.

Enjoy the read.