Since the Government released its Budget back in May, I’ve been stewing over what I believe is a lack of support for small business.
Sure, there was the tax incentive for more research and development, but that’s only if you can afford more than $50,000 a year on R&D and most small businesses in New Zealand would struggle to afford that.
The only support for small business provided was the introduction of e-invoicing, which Government said “will see small businesses able to be paid on time and ensure better cash flow”. They’ve budgeted $7.102m over the next three years for this.
According to the Government, delivering “an e-invoicing framework which allows businesses in New Zealand to digitally transact across the entire procure-to-pay life cycle using their New Zealand Business Number” will result in “an estimated 80% productivity gain by improving financial data quality, reducing payment cycles, and reducing the likelihood of fraud”.
Is this good for small business? I had no idea because I didn’t know what e-invoicing was. Thanks to Google I’ve discovered e-invoicing is a fancy way of describing how we send invoices via electronic means rather than using paper/mail. Yep, it’s what we do if we’re set up on Xero or MYOB. Create the invoice and send it electronically rather than printing it off and posting it via snail mail.
I also found on Google that New Zealand and Australia are fine-tuning a prototype developed over the past several years by the Digital Business Council, which is a collaboration between the Australian Taxation Office and businesses such as Xero. According to what’s online, Australian or New Zealand governments could be using e-invoicing with their own suppliers as soon as the end of 2019.
If we take this at face value, the introduction of e-invoicing will supposedly benefit (initially at least) only those businesses that supply goods/services to the New Zealand Government. But that’s confusing because presumably the Government is already paying its bills on time, right? I’m curious how e-invoicing will help those businesses it deals with be paid on time and ensure better cash flow. I wouldn’t have thought our Government paid its suppliers quicker or slower depending on how they invoice.
But let’s give our Government the benefit of the doubt and assume the introduction of e-invoicing is for the benefit of all businesses, not just those that deal with Government. If that’s the case then I have to call bullshit on this.
I’m more than happy to applaud the Government for initiatives that actually work. And I love the thought the Government wants to support small businesses by helping them to be paid on time and ensure better cash flow, but the problem of being paid on time and having better cash flow has very little to do with how you invoice. Instead, it has everything to do with:
1. YOU
If you want to be paid on time:
- you need to have terms of trade that you and your customers have agreed to (and stick to them!)
- you need a process to follow up and collect what you’re owed (and you need to actually DO IT!)
And if you want better cash flow then you need to:
- stop selling and instead help more customers buy from you
- make sure what your customers buy is of more value to your customers than what you want to be paid for it
- make sure it doesn’t cost you more than you earn to deliver whatever service/product you offer.
It’s your business and if you aren’t ticking the above boxes, do something about it or get help to do something about it.
2. YOUR CUSTOMERS (this is actually you too, indirectly):
If you want customers who pay you on time:
- only deal with customers who have good credit records
- be prepared to fire those customers who always pay you late
- don’t enable your customers by letting them pay you outside whatever terms you agreed
- avoid customers who consistently say one thing and do something else.
You can’t control how your customers earn or spend their money. But you can control how your customers do business with you (it’s your business remember), and which customers you deal with. When it comes to them not paying you, what they’re really saying is “you’re not important” because I guarantee you they’re spending their money in other ways. Do you really want to be doing business with people like that?
There is no argument that dealing with your invoices electronically using an accounting system has productivity gains (although I’m not entirely convinced about the estimated 80% productivity gain the Government stated). But that’s about it – less paper handling, less mail, fewer delays in your customers receiving your invoices.
For those businesses that are efficient and already have good cash flow (and probably already use email/internet for invoicing), there are gains to be had. But if your cash flow is already a problem, you have no terms of trade with your customers, or you have little or no processes around debt collection, using e-invoicing will make very little, if any, difference.
If you want your customers to pay you on time, don’t rely on the Government’s planned introduction of e-invoicing over the coming three years. Instead, start with your getting/following your terms of trade, having/using debtors collection processes, and running a great business (selling something someone wants, for a price they’re willing to pay, for more than it costs you to sell).
One last thing… it worries me when our Government says “This Budget provides support to small businesses. In particular the introduction of e-invoicing will see small businesses able to be paid on time and ensure better cash flow”. It worries me because we have a Government that believes:
- of everything that was in the Budget, “in particular” the introduction of e-invoicing will provide support to small business (more than anything else, this was the best they could do?); and
- changing the invoicing system a business uses supports small businesses being able to be paid on time and ensure better cashflow. You don’t tinker with the invoicing system to get paid on time and improve cash flow – that’s like changing the tyre on a car that’s on fire!
What this shows is a Government with little understanding of small business.
