Your Helping Business

How Your Money Works

How do you collect payment?

There are several ways, yes you can use cash but avoid if possible, keep it separate and pay it in to your business bank account as often as possible.

It then depends whether you take payment at ‘point of sale’ when you actually deliver your services, or by invoice before or after delivery.

If you are booking appointments on line it’s common practice to take payment prior to delivery although clients can use the online systems through which they are paying to defer payment until delivery has been made.

Depending on circumstances and the nature of the business relationship it is always recommended to take payment up front in full or by guaranteed stage payment. Only in certain circumstances and with highly trusted clients would you take payment after delivery.

In the UK the preferred payment process is through stage payments. For a three month coaching course you’d take one third up front, then one third at the beginning of month two (before you deliver the sessions for that month and the third at the beginning of month three. That way you get the whole payment in a two month period.

So how precisely do you collect your money from your client?

Common practice now is to use cards, credit or debit, and you can use this direct by purchasing or renting a card machine or an app on your phone. The card company will take a commission on the sale which can be up to 3.5%, sometimes more.

Note that it is no longer legal to add any sort of premium or ‘administration fee’ to your price for card purchases. But you can offer a discount for direct transfer to your bank or use of a standing order.

There is a company called Go Cardless who facilitate this, ensure that you do get paid, and they charge a much lower commission than the card companies.

If you issue an invoice in advance of, or after delivery, normal practice is for direct transfer but you must state the payment terms, such as ‘payable immediately’ on your invoice.

By the way, no-one uses cheques much any more and the banks always charge a fee, sometimes even with ‘free banking’, to process them.

Cash
Using cash is an area where a lot of businesses and especially sole traders, tend to run into problems unless they are meticulous about keeping ‘business cash’ and ‘personal cash’ entirely separate and not ‘borrow’ from one or the other to make cash payments.

Many therapists I know take cash payments for services and unfortunately this common practice does raise red flags with the Revenue making the sector a ‘target’ for ‘investigation’.

All cash payments and receipts must be recorded, and all cash movements accounted for. Remember also, banks charge quite high fees for paying in cash to a business account (higher than the card company fees).

Doing anything else when you are running a business is technically illegal and you can incur big penalties, sometimes custodial, if you are discovered to be running an ‘under the counter’ business or getting involved (even unintentionally) in anything that might be considered to be ‘money laundering’.

Ideally, cash should be avoided wherever possible but procedures for dealing with cash on a regular basis are provided in the Personal Business Creation System.

Cash Flow
The Cash Flow Forecast (CFF) is a vital part of your business financial planning – but you won’t find it in any of the popular accounting systems like Xero, Sage or QuickBooks.

Why, because, like most accountants, they look back and not forwards. They are about record keeping, about what has happened and not about looking ahead.

The CFF is very simple and you can easily set it up using a simple spreadsheet. It’s a rolling forecast set up starting with ’this month’s’ actual figures of income and expenditure.

Then you predict as accurately as you can how much is coming into and going out of the business each month for the next 12 months.

To do this you’ll need to categorise each source of income and each type of expenditure and adjust accordingly as you get monthly ‘actuals’

You should also create a longer term prediction which will be less accurate, covering up to 5 years.
A template for this is available within the PBCS.

Banking
Whether you operate as a Sole Trader or Limited Company you need to set up a separate bank account for your business.

I’ve seen many sole traders try to operate their business through their normal personal current account, or even worse, through a joint account, resulting in much unnecessary stress and confusion.

Set up a separate account, which can be a ‘personal’ account if you are a sole trader but must be a business account if you are a company. Most banks will give you at least a year of ‘free banking’ for a business account and after that it’s not really expensive.

There are now a number of on-line business banking accounts available which charge no fees., We use Starling Bank which operates via an app on your phone but is also available in a desktop version. These banks are an excellent alternative to the mainstream ‘high street’ banks.

You may need to open your account before you start trading or before you have anything to pay into it as you will probably need to identify your account to people for other reasons, for example, if you want to set up an account with PayPal. In any case it is essential to get the account set up.

Whether you operate as a Sole Trader or Limited Company you need to set up a separate bank account for your business.

I’ve seen many sole traders try to operate their business through their normal personal current account, or even worse, through a joint account, resulting in much unnecessary stress and confusion.

Set up a separate account, which can be a ‘personal’ account if you are a sole trader but must be a business account if you are a company. Most banks will give you at least a year of ‘free banking’ for a business account and after that it’s not really expensive.

You may need to open your account before you start trading or before you have anything to pay into it as you will probably need to identify your account to people for other reasons, for example, if you want to set up an account with PayPal. In any case it is essential to get the account set up.