How do I determine my residency status?

By Randall Orser | Personal Income Tax

Tax concept TNYou’ve been offered that great opportunity overseas, and not sure how that will affect you in Canada. Is this a permanent departure or temporary? Do you still have to file an income tax return in Canada? What do I have to divest myself of to not have to file a tax return in Canada? There are many things to think about when leaving Canada for work or otherwise.

Under Canada’s tax system, your income tax obligations to Canada are based on your residency status, not citizenship. You need to know your residency status before you can know what your tax responsibilities and filing requirements to Canada are. An individual’s residency status is determined on a case-by-case basis and the individual’s whole situation and all the relevant facts must be considered. The relevant facts in determining your residency status include: the residential ties you have in Canada, the purpose and permanence of your stays abroad, and your ties abroad.

The first thing you need to determine is do you have residential ties to Canada. Significant residential ties include: a home in Canada, a spouse or common-law partner in Canada, and dependents in Canada.

Other ties that may be relevant include:

  • Personal property in Canada, such as a car or furniture;
  • Social ties in Canada, such as memberships in Canadian recreational or religious organizations;
  • Economic ties in Canada, such as Canadian bank accounts or credit cards;
  • A Canadian driver’s license;
  • A Canadian passport; and
  • Health insurance with a Canadian province or territory.

The residential ties you establish or maintain in other countries may also be relevant.

Your residency status if you left Canada

  • If you are working temporarily outside Canada, vacationing outside Canada, commuting (going back and forth daily or weekly) from Canada to your place of work in the United States, or teaching or attending school in another country, and you maintain residential ties with Canada, you may be considered a factual resident of Canada.
  • If you left Canada and established a permanent home in another country and you severed your residential ties with Canada and ceased to be a resident of Canada in the tax year, you may be considered an emigrant.
  • If you established ties in a country that Canada has a tax treaty with and you are considered a resident of that country, but you are otherwise a factual resident of Canada, meaning you maintain significant residential ties with Canada, you may be considered a deemed non-resident of Canada. The same rules apply to deemed non-residents as non-residents of Canada.
  • If you left Canada and you are a government employee outside Canada, which includes members of the Canadian Forces posted abroad, you are usually considered a factual resident or a deemed resident of Canada. For more information, see Government employees outside Canada.

Your residency status if you entered Canada

  • If you left another country to settle in Canada and you established significant residential ties with Canada and became a resident of Canada in the tax year, you may be considered an immigrant.
  • If you have ties in a country that Canada has a tax treaty with and you are considered to be a resident of that country, but you are also a factual resident of Canada because you established significant residential ties with Canada, you may be considered a deemed non-resident of Canada. The same rules apply to deemed non-residents as non-residents of Canada.
  • If you have not established significant residential ties with Canada to be considered a factual resident, but you stayed in Canada for 183 or more days in the year, you may be considered a deemed resident of Canada.

Your residency status if you normally, customarily, or routinely live in another country

  • If you did not have significant residential ties with Canada and you lived outside Canada throughout the year (except if you were a deemed resident of Canada), you may be considered a non-resident of Canada.
  • If you did not have significant residential ties with Canada and you stayed in Canada for less than 183 days in the tax year, you may be considered a non-resident of Canada.

If you want Canada Revenue Agency’s opinion on your residency status, complete either Form NR74, Determination of Residency Status (Entering Canada) or Form NR73, Determination of Residency Status (Leaving Canada), whichever applies, and send it to the International and Ottawa Tax Services Office. You must give CRA as many details as possible on your form so that they can give you our most accurate opinion.

Why Outsourcing is a Good Option for Home Business Owners

By Randall Orser | Small Business

Outsourcing Definition TNThere are those who frown upon the current trend of offshore outsourcing. In fact, in 2004, during a Strategic Research Institute conference, there were at least 7 workers’ organizations that rallied against offshore outsourcing in New York where the conference was being held (source: Those who are against offshore outsourcing contend the practice deprives many American workers of job opportunities. They may like it or not, but it looks like outsourcing is here to stay because many businesses, especially home-based businesses, highly favor it. Outsourcing has proven itself to be a cost-effective strategy to get things done. There are three reasons why you would want to outsource your home business. For one, it is cheaper than hiring full time employees. Second, you do not have to go through the process of direct hiring and firing. And finally, you can take advantage of the expertise that is available overseas.

Cheaper Labour

Many home businesses are small-scale in operations. They cannot afford to pay staff working for them full-time. Yet, the home business owners usually find themselves swamped with work and realize that they do need help. Some manage to get part-time workers but salaries eat a big chunk off their profits. Now, it is a fact that wages are much lower in other countries compared to the pay range in North America. You too can get those foreign workers to work for you and still pay them based on their local rates. The BPO (business process outsourcing) industry is growing in many countries like India, Bangladesh, Pakistan, and the Philippines. They have several companies servicing American businesses.

Advantages of Outsourcing

Other than the lower labour expense, you can save money when you outsource your home business. You do not need to make additional investments on new furniture, computers and bigger office space just so you can accommodate workers. Instead, you get to use the facilities of the BPO vendor. Also, you pay them on a fee-for-service basis, which means that what you incur are variable costs instead of fixed expenses. You get to enjoy staffing flexibility with outsourcing. If your business has seasonal or cyclical ups and downs, you can easily get workers for the duration of the high demand and release them when you expect the demand to be low.

If you’ve been spending more time on your work than what you originally intended to, outsourcing some aspects of your home business will enable you to cut down your working hours. You can then have more free time to pursue other business opportunities. You can also reclaim the time that you should devote to your family and personal life. BPO vendors have developed the skills and competencies of their workers in various business processes. They are also continuously updating their knowledge and technology to keep abreast with competition. When you engage their services, you avail of their talents and expertise that in turn puts you ahead of your own competitors.

What You Can Outsource

You can outsource the business functions that you would delegate to employees if you were to hire. Review your list of regular tasks and note those that you can’t seem to find the time to work on even if they’re fairly easy. You may also want to outsource those repetitive tasks that you don’t enjoy doing. The most often outsourced jobs include customer care and sales support, which include responding to phone-in queries and complaints, telemarketing, order taking, and invoicing. Many home businesses also outsource their accounting functions, production, fulfillment of orders, website administration, and data entry, among others.

You really do not need to work harder than you have to and you should not miss out on orders because you’ve already reached the limit of what you can do on your own. Outsourcing some areas of your home business can be advantageous for you; it can increase your capacity without the hassles of actually hiring more people.

Can I As A Salaried Employee Claim A Home Office Deduction?

By Randall Orser | Personal Income Tax

Tax deduction piggy TNMany employers are making use of telecommuting employees, and you may be one of those. It can be quite handy to work from home, even a couple of days a week. For a home-based business owner, the home office deduction can be a great deduction for writing off the use of the home to run the business. Can a salaried employee do the same?

You can deduct expenses you paid in 2013 for the employment use of a workspace in your home, as long as you meet one of the following conditions:

  • The workspace is where you mainly (more than 50% of the time) do your work.
  • You use the workspace only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients or customers.

You can deduct the part of your costs that relates to your workspace, such as the cost of electricity, heating, and maintenance. If your office space is in a rented house or apartment where you live, deduct the percentage of the rent as well as any maintenance costs you paid that relates to the workspace. However, you cannot deduct mortgage interest, property taxes, home insurance, or capital cost allowance.

If you are salaried and commission based, and your commissions are greater than your salary (I would say double may be best), you may be able to deduct insurance and property taxes.

You can only deduct workspace expenses from the income to which the expenses relate and not from any other income. The amount you can deduct for work-space-in-the-home expenses is limited to the amount of employment income remaining after all other employment expenses have been deducted. This means that you cannot use workspace expenses to create or increase a loss from employment.

If you cannot deduct all your workspace expenses in the year, you can carry forward the expenses. You can deduct these expenses in the following year as long as you are reporting income from the same employer. However, you cannot create or increase a loss from employment by carrying forward workspace expenses.

You must get your employer to complete and sign a form T2200 Declaration of Conditions of Employment, and keep a copy for your records. You do not have to send this into Canada Revenue Agency.

If you are a salaried employee you can deduct work from home expenses, though you are limited compared to someone who runs a business out of their home.

Surviving A Compliance Review With Canada Revenue Agency

By Randall Orser | Personal Income Tax

Survey On Clipboard Shows Very GoodThe dreaded audit has been somewhat replaced by the ‘compliance review’, which is a nicer way of saying we’re coming in to look at your books but won’t probe you as much. As I write this I have had a couple of clients go through a compliance review, both turned out to be nothing. What they are doing with the compliance review, especially for new businesses, is to ensure you’re doing things correctly, and are filing your remittances correct and on time. Canada Revenue Agency (CRA) is trying to ensure all businesses are compliant with their business remittance requirements before it gets too out of hand.

The first thing you’ll get from CRA is either a phone call or letter stating what they are reviewing and when. If it is a phone call, get them to fax you what was discussed in the conversation. I always find it’s best to do this step, as there are no mix-ups as to what was required.

The next thing is to call your bookkeeper or accountant and let them know CRA is doing a review. Follow this up with the letter you receive. I find it best to get the bookkeeper or accountant to deal with CRA in these situations, as they understand what reports CRA will need, and may have better access to the accounting system. Also, the bookkeeper/accountant will only give them what they ask, where you may give them too much information.

The auditor will examine books and records, documents, and information (collectively referred to as records) such as:

  • Information available to the CRA (such as tax returns previously filed, credit bureau searches, or property database information);
  • Your business records (such as ledgers, journals, invoices, receipts, contracts, and bank statements);
  • Your personal records* (such as bank statements, mortgage documents, and credit card statements);
  • The personal or business records of other individuals or entities not being audited (for example, a spouse, family members, corporations, partnerships, or a trust [settlor, beneficiary, and trustee]); and
  • Adjustments made by your bookkeeper or accountant to arrive at income for tax purposes.

*Never give personal records unless absolutely asked, and push not to provide them. CRA will use any monies received in your personal account against you, even if it is a cheque from grandma.

You need to have this entire information ready for the review, and you may have to meet with your bookkeeper/accountant before the audit and go through everything. Don’t leave anything out that CRA has requested, and, of course, don’t give them any more than they ask.

Your best bet for surviving this review is to remain calm, deal with the auditor in a professional manner, and if you feel not being present is best then just have your bookkeeper/accountant meet with the auditor. There is no reason to panic, as this is nothing personal, you have been selected for review either as a random pick or that you are a relatively new business.

Is This Receipt For The Children’s Fitness Or The Arts Credit?

By Randall Orser | Personal Income Tax

healthcare TNThe Children’s Fitness and Arts credits were brought in just a few years ago, and have been very popular with parents of active kids. Any child under 16 years of age qualifies for either of these credits.

What are The Fitness and Children’s Arts Credits?

The children’s arts tax credit and the children’s fitness tax credit allow you to claim a 15% non-refundable tax credit on an amount up to $500 per child per credit on the fees you’ve paid in 2013 to register a child in a prescribed program of eligible activities. This can give you a credit of up to $75 per child per credit.

  • Eligible activities for the children’s arts tax credit include artistic or cultural activities such as art classes, piano lessons, and tutoring, as well as other activities that are intended to improve a child’s dexterity or co-ordination.
  • Eligible activities for the children’s fitness tax credit include strenuous games like hockey or soccer and activities such as golf lessons, horseback riding, sailing, and bowling, as well as others that require a similar level of physical activity.
  • You can claim these credits for your child, as well as for the child of your spouse or common-law partner.
  • The child must have been under 16 years of age (or under 18 years of age if eligible for the disability tax credit) at the beginning of the year in which the eligible expenses were paid.
  • You can claim an additional amount of $500 for each eligible child who qualifies for the disability amount and for whom you paid a minimum of $100 in registration or membership fees.
  • Two parents can claim eligible fees for the same child, as long as they do not claim the same fees and the combined amount is not more than $500.

Can an expense be used for one or the other credit? That’s a tough one. Canada Revenue Agency states ‘Eligible expenses do not include amounts that can be claimed as the federal children’s fitness amount’ under the Children’s Art’s Credit, and vice versa under the Fitness Credit. However, I’ve never had them reject using Dance under the Art’s Credit rather than the Fitness Credit as long as the Fitness credit is already used up for that child.

For the fitness credit, the expense must require significant physical activity. Physical activity includes strenuous games like hockey or soccer, activities such as golf lessons, horseback riding, sailing and bowling as well as others that require a similar level of physical activity.

For the arts credit, it must help in the development of creative skills or expertise in an artistic or cultural activity, focus on wilderness or natural environment, develop and use of intellectual skills, interpersonal skills development, or provide enrichment or tutoring in academic subjects. This would include literary arts, visual arts, performing arts, music, media, languages, customs, and heritage.

As you can see the two credits are quite different. The only expense that may be split between the two is dance. Dance is a very physical activity, though it is more in the performing arts/music arena. If the dance is more to help with physical strength, endurance, or coordination then it could be considered for the fitness credit.

For the fitness and arts credits, it’s best to ensure that what you are claiming for them is actually for that credit. Look at the expense and see how it fits the criteria for that credit.

Is Now a Good Time to Be Thinking about Starting a Business?

By Randall Orser | Small Business

Businessman falling TNIs now a good time to be thinking about starting a business? The answer depends on several different factors. The most important factor that one needs to consider when answering this question is whether or not you have the venture capital to do so. When the economy is in the throes of a downturn, finding the money to start up a new business can be difficult. Therefore, if you have a source of venture capital already in place, you are one leg up and ready to start a business of your own.

What Type of Startup Business Has a Chance?

While the economy might not be that great at the moment, there are several different types of businesses that are continuing to grow and find success. The truth of the matter is that people cannot be expected to give up everything. There are items that people need to survive, items that businesses need to grow, and items that people simply want.

Therefore, certain businesses are going to thrive while others are going to struggle. Plus, certain members of society can still afford to continue living at the same level that they have been living at. Consequently, these individuals can still afford to purchase whatever they want to have.

In general, businesses that can provide goods and services for reasonable prices and fees are going to fare better than their counterparts that are charging excessive rates and prices. In general, fast food restaurants and discount stores are hanging onto a fair share of the market. Additionally, businesses that provide a necessary service or essential commodities at reasonable rates are also surviving. Plus, businesses that cater to current trends in technology, learning, and social networking are also in a good place to continue thriving.

Tips on Becoming a Successful Recession Startup Business

In order to make a go at a startup business and succeed, the stage has to be set just so. In essence, all of your ducks need to be in a row and it’s best to get them there before you begin. Follow these simple tips to get started on your new business venture with a positive step in the right direction.

Venture Capital Tip

Make sure that you have the access to a source of venture capital. If you are one of the lucky ones who can still get a loan at an affordable rate, then that should be sufficient. If you aren’t going to be able to take out a loan, then make sure that you have the cash that you will need to function as a business for at least one full year and ideally two full years. Don’t rely on potential sales or business income. If you don’t have it, you can’t count it.

Research Tip

Do the research before you select the type of business venture or the location. If the area is already inundated with similar enterprises, you’re cutting off your foot before it even takes that first step. Check out how many others are already selling the products or service that you want to sell in a particular locale. Check out their advertising scenario. Assess their level of success by watching their clientele traffic for a week or so. If need be, switch the location that you are considering or tweak your business idea to an area for which a true need exists.

Beginning Business in a Small Way

Don’t over invest your money during the beginning stages. Start out small and work your way up. There’s plenty of time to amp it up once you get started. However, if you need to shift gears and you’ve already dumped all of your cash into the project, what are you going to use to adjust your plan? Exercise a bit of frugality and shop for your supplies and needs wisely. In fact, make a budget and stick to it so that you don’t run out of business capital too quickly.

Are you a first time donor?

By Randall Orser | Personal Income Tax

Glass bank for tips with money isolated on white TNFor 2013 and beyond, the Canadian government in order to encourage more people to donate to charity has created the First-Time Donor’s Super Credit. For first-time donors, the government proposes to introduce a temporary supplement to the existing non-refundable tax credit for charitable donations by individuals. The new credit can be claimed once from the 2013 to 2017 taxation years.

Starting in the 2013 taxation year, the government introduced a temporary non-refundable First-Time Donor’s Super Credit (FDSC) that will supplement the non-refundable charitable donations tax credit (CDTC) for individuals. This new credit effectively adds 25% to the rates used in the calculation of the CDTC for up to $1,000 of monetary donations. As a result, a first-time donor will be allowed a 40% federal credit for donations of $200 or less, and a 54% federal credit for the portion of donations over $200 but not exceeding $1,000.

For the 2013 taxation year, an individual will be considered a first-time donor if neither the individual nor the individual’s spouse or common-law partner has claimed the CDTC in any of the five preceding tax years.

Currently, the non-refundable charitable donations tax credit (CDTC) is calculated as the total of:

  • The lowest income tax rate (15% for 2013) multiplied by the first $200 of charitable donations claimed by an individual; and
  • The highest income tax rate (29% for 2013) multiplied by the portion of the donations claimed by the individual that exceeds $200.

As a first-time donor, you and your spouse or common-law partner in a particular taxation year may share the FDSC, along with the corresponding CDTC. However, the total amount of donations that may be claimed for the FDSC by both individuals cannot exceed $1,000. When it cannot be agreed on the amount of the credit that each of you will claim, the CRA may apportion the credit.

Only donations of money that are made after March 20, 2013 will qualify for the FDSC. For taxation years from 2013 to 2017, a new line will be added to Schedule 9, Donations and Gifts to identify the eligible portion of the charitable donations that you have claimed that are donations of money.

First $200 of charitable donations claimed: $200 x 15% = $30
Charitable donations claimed in excess of $200: $300 x 29% = $87
First-Time Donor’s Super Credit: $500 x 25% = $125
Total FDSC and CDTC: $242



Example 1: An eligible first-time donor claims $500 of charitable donations in 2013. All of the donations are donations of money. The first-time donor’s FDSC and CDTC would be calculated as follows:

First $200 of charitable donations claimed: $200 x 15% = $30
Charitable donations claimed in excess of $200: $500 x 29% = $145
First-Time Donor’s Super Credit: $300 x 25% = $75
Total FDSC and CDTC: $250

Example 2: An eligible first-time donor claims $700 of charitable donations in 2013. Only $300 of the donations is donations of money. The first-time donor’s FDSC and CDTC would be calculated as follows:

The First-Time Donor’s Super Credit (FDSC) is a great way for those that thinking of giving to charity to get a little more back on their taxes.

Collect Those Overdue Payments, Without Hiring A Collection Agency

By Randall Orser | Small Business

Debt concept TNCollecting past-due accounts can be a hassle for any small business owner. The process can spoil customer relations and waste valuable time. But there are ways to collect payments without the headache of hiring a collections agency or going to small claims court.

Try these four steps to help ease the woes of collections:

Credit Cards

Customers who know they can pay in installments may be more likely to do business with you. Overdue payment issues land between the customer and the credit card company—the business owner is removed from the equation. There are fees for accepting credit cards, so do your research. American Express (Amex) tends to be the most expensive; however, if you are dealing with wealthier clients you may want to accept Amex. Look at your industry association, Chamber of Commerce, Board of Trade, Canadian Federation of Independent Business, etc. as you get a discount on merchant fees through these associations.

Advance Payment

Retainers followed by additional paymentsas the job proceeds increase chances of being paid the full amount. Collect one-third up front; one-third midway through the service; and a final payment upon completion. Work out the percentage that works best for you and the client. You may want to get at least materials costs up front so you’re not out that amount. If your business is mostly labour, you may want to get a good portion to cover your labour costs. 

Transfer Collections Duties

Hire a part-time employee to handle your past due accounts. Your staffer can closely monitor accounts, which could shorten collections times. This strategy also alleviates tension between the business owner and the late-paying customers. Sending statements is also a good idea; there are business people who wait for a statement before paying anything. Plus, there’s no excuse for a missed invoice as they got a statement.


Prepare basic contracts in advance and ask customers to sign off on a payment schedule and a specific work plan to reduce the chance of misunderstandings over the service and the payment. Always have a scope of work when working on a project basis, this way the customer can’t complain when you say ‘sorry that’s extra’. Construction is great at this, and anything not in the scope is a ‘change order’, and an extra cost that’s invoiced separately. It even pays to have a ‘scope of work’ for any business, especially a service business. Let the customer know what they’re getting for the price they’re paying.

While the above tips won’t stop all bad debts, they can alleviate the headaches of trying to collect monies owed to your business. Sadly, bad debts are just a part of doing business, so do as much as you can to nip them in the bud.

How Do I Change my Return?

By Randall Orser | Personal Income Tax

Tax word cloud TNThere does come a time when you may have to change a tax return you’ve already filed. You may have forgotten a slip, donation, and medical receipts; or, perhaps, a slip you filed was amended, and now you have a new slip. The question is what do you do when something changes?

The first thing NOT to do is file another return. This is the surest way to confuse Canada Revenue Agency (CRA), and may cause you to be audited. Wait for your notice of assessment before asking for changes to your return. You can ask for a change to a return for a tax year ending in any of the 10 previous calendar years. This year (2014), you can only ask for changes for tax year 2004 or later.

If you have used a tax preparer to file your tax return, then the best thing is to let them know what you have forgotten, and whether or not it’s worth doing the adjustment. Your tax preparer will charge you for doing any adjustments to your tax return. Sometimes for small donations, or medical receipts, the adjustment is not worth the cost of the additional charge. If you find that your tax preparer forgot to file something with your return, and you did give them the slip or receipt, they should be willing to do the adjustment for free.

You can adjust your return online using My Account, and click on ‘Change My Return’ (on the left-hand side menu under ‘Quick Links’. You must have setup My Account prior to doing this. Using the drop-down menu choose the year you wish to adjust. If you know the line you wish to adjust use the search feature. Check your tax return to see where you are adjusting. For example, if you received another T4, you want to adjust Line 101 Employment Income; plus there will be other lines to adjust for the CPP, EI and Tax that are on the T4.

You can do an adjustment the old-fashioned way, and mail (or fax) your adjustment to CRA; you would send the adjustment to your tax centre. You can use either form T1ADJ—T1 Adjustment Request, or a signed letter giving details of your request (including the years of the returns to be changed), your social insurance number, your address, and a telephone number where we can call you during the day. You must also include all supporting documents for the change, including those for the original assessment (unless you paper filed in which case CRA already has them).

Send your current year return separately from any request to change a return for another year. Don’t send them all in the same envelope or fax. If you drop them off at your local tax centre, then put each year in a separate envelope.

Processing times for online, is usually within 2 weeks, and by mail (or fax), usually within 8 weeks. It may take longer if: your request is sent in late summer or fall, your request needs more review, or CRA has to contact you or your authorized representative for more information or documentation.

When CRA’s review is done they will send you a notice of reassessment showing changes to your return or a letter explaining why CRA did not make the changes you asked for or if no changes were needed.

Remember when you change your return; it may not be in your favour, such as with a missed T4. In such a case, you may end up owing CRA and may be charged a penalty and interest for the amount owing. Sadly, most times you end up getting a Notice of (RE)Assessment in the fall, if you haven’t already adjusted the tax return for the missing T4.

Adjusting your tax return can be a daunting task, so it may be best to get the person who did the return to adjust it, or talk to a tax preparer or CRA about what you need to adjust, and why. In the end, it may not be worth the additional cost to do the adjustment.

Cash Flow Management for Small Business Owners

By Randall Orser | Small Business

Dollar Coin Shows Currency Symbol And Cash TNCash flow is the bane of small business owners. Even if you are working on a large project that takes several weeks, you still have to pay the rent, utility bills, supplier invoices, loan repayments, and employee wages while you are waiting for the big payout of the project. Managing your cash flow is not always easy, especially when some clients extend your terms of payment and delay paying your invoices on time. Providing credit terms over several months can make your customers happy, but can make it tough for your business to pay the regular bills.

You can manage your small business cash flow by various methods. You can encourage your customers to pay invoices sooner, you can invoice in stages for the project, and you can factor your invoices to receive the payment from a credit agency before the customer actually pays the invoice. Some businesses will find a mixture of methods helps to balance the ledger book every month.

Encourage Customers to Pay Invoices Sooner

You can encourage your customers to pay invoices quickly in several ways. Some small businesses only work with cash or immediate payments. Customers pay cash on delivery or via credit cards, or your business does not deliver the product. While this is suitable for some businesses, such as those who use web-based ordering systems, this is less suitable for some businesses.

If you cannot ensure your customers pay for the product or service before delivery, you need to encourage your customers pay the invoice as soon as possible. The longer you extend credit to your customers, the longer you have to balance your cash flow without the income. Some small businesses offer a discount to customers who pay up front, or within a short time, such as 7 days of receiving the invoice. While this is a good way to encourage customers to pay on time, it can be costly to your business, depending on the discount you offer.

Invest in good follow up debt collecting practices. Sending out reminder invoices every week with coloured stickers encouraging fast payment of the invoice can encourage customers to pay the invoice sooner. Follow up with personal phone calls when customers have extended the payment of the invoice outside the terms of payment.

Reduce your terms of payment from 30 days to 7 days, if possible. If your customers do not pay on time according to your terms of payment, you may be able to add a surcharge to the invoice. This is a better cash flow solution than offering a discount for early payment, as the business gains more income when the customers pay late, and does not lose money for encouraging customers to pay on time.

Invoice in Stages

For larger projects over several weeks, set up a contract with the customer that allows you to invoice the client periodically over the course of the project when your business meets the key stages. Agree on what the key stages of the project will be with the customer, and decide on deadlines for each stage of the project. This will let the customer know when to expect your periodic invoice, and you will know when to expect the money from the customer for your cash flow balances.

Factor Your Invoices

Factoring is a relatively new form of credit that some credit companies are offering small business owners. Unlike bank loans with set repayments, factoring offers small business owners much more flexibility. Generally, you will be able to borrow up to 90 per cent of the invoices you have sent to your customers at any one time.

You borrow the cash via a draw down account and when the customer pays the invoice directly to the factoring company, you receive the rest of the invoice amount minus the factoring fee. The fee is usually smaller than interest payments from a bank, and the factoring company can help your business to follow up on the outstanding customer debts, which could save your business from the costs associated with debt collecting practices.

Managing your cash flow is managing the life blood of your small business. Without cash flow, you cannot purchase necessary supplies, pay your bills, or pay employee wages when you need to. Manage the cash flow of your small business by encouraging fast customer payments of invoices, invoicing in stages, or factoring your invoices.

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