Cash Flow & Debt Collection Concerns? Advice for Small Business Owners


As a small business owner you will know how important a regular flow of income is to keep you functioning in a sustainable way. Most will suffer from cash flow problems on occasion but unfortunately, it is thought that 80% of new small businesses that fail, do so because of problems with cash flow.

The good news is that most problems can be avoided with some preparation and a management strategy in place. So having agreed your startup loan or grant and launched your new venture, how do you ensure that your business bank account stays in good shape?

What exactly is cash flow?

Put simply it is the money that is moving in and out of your business bank account every month. You might feel, especially at the beginning, that the money is only flowing one way, but eventually you should also be receiving revenue too! Money comes in from your customers who are buying your products or services but you will also have cash going out for things like rent, loan repayments and cost of goods.

How important is cash flow?

Your business is sustainable if you are enjoying a ‘positive cash flow’ situation. If more funds are flowing out than are coming in then your business will simply run out of money.  With no cash reserves, you won’t be able to pay the bills and your business could fold.

One simple bad debt coupled with other factors such as high overheads and poor margins may ultimately determine whether your business can survive or not. Cash flow problems can very quickly lead to a serious situation.

What factors adversely affect Cash Flow and what can I do about it?

The most common cash flow problems are caused by slow paying invoices, high overheads, insufficient margins, excess inventory and bad debts. So what causes these issues and how can you avoid or solve the problems?

Slow Paying Invoices

As a small business, you will be usually offer 30-day to 60-day payment terms to clients. However waiting this long for payments can create financial difficulties especially if the debt remains unpaid beyond the 60 days.

To avoid future problems, it is advisable to formally enter into a Sale of Goods Agreement. This a contract which defines the responsibilities of the buyer and the seller and establishes the terms on which a seller transfers goods to a buyer. The agreement also sets out the exact nature of the goods, as well as price and payment terms and what happens at the end of the contract.

In this agreement, you are able to set out deadlines for payments and penalties for late payments. You can clearly state that there will be interest payable on outstanding debts. You may also consider offering incentives for prompt payment such as a 3% discount for invoices paid within 10 days.

High Overhead Costs

Your overhead costs are not directly related to the goods you are selling or the service you are providing. Rather they are costs incurred to run your business day to day such as loan repayment, rent and utilities. If your overheads are too high then your businesses cash flow can be adversely affected. Unfortunately such costs may be necessary. They are also continual and need paying every month!

In order to remedy this, you should continually be reviewing the cost of your overheads and making cutbacks where possible. Consider changing your service providers to get a better deal but always be mindful of making cuts that could directly affect your ability to grow your business. Audit your expenses regularly and always consider a cheaper option!

Related reading: 6 simple ways to cut business costs

Insufficient Margins

The goal of any business is ultimately to turn a profit. However, in a highly competitive market and in a bid to secure more sales, business owners often price themselves too low. This can result in very small or even negative gross margins.

To make sure you are priced correctly, you must have a clear understanding of your ‘all-inclusive’ cost of delivering your product or service. Don’t miss anything out! If your margins are too weak then consider raising your prices. You could also drop products or services that have weak margins and focus on those with higher returns.

Excess Inventory

If you have a warehouse brimming with stock then your cash is tied up and completely static. This can occur when you are not adequately forecasting and you have over-purchased stock.

Audit your inventory so that you only keep stock for the shortest amount of time possible before it is sold. Always remember though to have key items in stock at all times. You may lose customers if a popular product is not available to purchase and they have to go elsewhere. Modify your forecasting to ensure accuracy. Take into account past volume, season and supplier capabilities. Use historical data to track trends and make predictions. Make sure your forecasts are realistic, not optimistic. If you are a new business with not much historical data, ask a mentor who is an expert in your industry for advice.

Overload of Bad Debt

Bad debts occur when you have supplied goods or services but the customer simply doesn’t pay. Longstanding bad debts can obviously damage your cash flow and ultimately your profitability. Recovering bad debts might be a difficult process but it is definitely one that should not be ignored!

Collecting your debts can be especially difficult for a small business. Without huge financial flexibility you have less bargaining power. Consider implementing a strategy to avoid this situation in the first place. It may be worthwhile looking at your payment terms and only giving extended terms to clients with good credit and who have a proven track record of payment. Clients who present a ‘credit risk’ may fall by the wayside but you are probably better off without them!

If you are in a situation with a number of bad debts then you need to have a structured credit control process in place. This will save time spent on chasing invoices and maximise your chances of recovering the debt.

Implementing a Credit Control Process

Firstly speak to the debtor and try and understand why the payment is late. Is it a first time debtor or is this someone who regularly doesn’t make their payments on time? This alone might be enough to recover the debt. It may be they are also suffering a cash flow problem but you are next on the list to be paid. Ask for a date in the near future that it will be paid and if not you can continue your process.

Next, issue a First Payment Reminder Letter, a short friendly reminder to repay an outstanding debt from a customer. This is an affable communication that when presented correctly will retain customer goodwill while encouraging prompt payment.

If there is still no response then this can then be followed with a Second Payment Reminder Letter. This is similar to the first but the tone can be more direct. The letter should include details regarding the amount of debt outstanding and the original due date. It should also state the interest that has been applied and what further action will be taken if it is not paid.

A Final Payment Reminder Letter is issued after the first two letters. It is a short, clear demand to repay the outstanding debt. The details will be the same as in the previous letters but should also state that legal action will be taken if the debt is not paid by a particular date.

After these steps have been taken you will hopefully receive an offer by a debtor to pay off their debt in regular fixed amounts. A Letter Accepting Payment in Instalments is a concise letter that accepts the proposed debt repayments from a debtor. It will include details on how much the instalment amounts are and the frequency and method of payment. This can prevent any potential legal disputes by setting out clear rules for the repayment of the debt. A Letter Accepting Payment in Instalments can reserve the right to take any legal action to recover outstanding debt. If the debtor fails to repay the debt on time, this letter can serve as evidence of the agreement.

With this credit control process in place you should find you can efficiently recover debts and make your cash flow situation much healthier! If all else fails, you may need to seek professional legal advice and even enlist the services of a debt collection lawyer or debt collection service.

Some Final Thoughts

Keeping an eye on your cash flow can be tricky but it is crucial. When you are starting out, don’t engage in impulse spending. Create a realistic budget and stick to it. Consider the benefit versus cost of every single expense you make.

When you are up and running, use a cash flow statement to keep track your revenue and expenses This will help you plan ahead for hard times. You should also consider having a financial cushion equivalent to at least two months of operating expenses. That way, if you do enter a cash flow crisis you have a fallback in reserve.

Want more tips on how to ensure sound cash flow management for your business?

Check out our Manage Cash Flow eBook:

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Zegal can help with all aspects of your credit control process:

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Key Financial Mistakes To Avoid When Looking To Start Your Very First Business

So you’re busy planning your very first business and you’re already excited about the profit you’ll be making in the long run. Having your very first business is both exciting and challenging. You’ll learn a lot of things from the business world – and you just can’t wait for your business to grow. However, starting a new business for the first time is sometimes risky. This is true especially when it’s very easy to commit mistakes in the beginning. So, here are the key mistakes to avoid when looking to start your very first business:

1. You Don’t Have A Reasonable Budget For Your Business

When you’re a first timer in running a new business, having a clear budget is important. It is one way of coping with the expenses you will incur. If you do not have a good budget plan for your first business, you may eventually end up losing because there will be a tendency that your expenses will exceed your income – and you don’t want that to happen, right? Besides, you cannot tell how well your business will fare in the coming weeks or months. When you lack that financial outlook, you could end up missing your goal of making your business profitable. You have to efficiently plan for the operational and marketing costs, as well as the other possible business expenses. That way, you’re steering your business towards expansion and growth.

2. You’re Making Large Purchases

Be careful to consider the long-time effects of immediately making large purchases for your business. When you’re starting up a new business, it’s best if you analyze your first financial moves. It’s good that you’re letting your business stand on its own by buying your office stuff, a new website, software, a huge office, and more, but you also need to be sure that the purchases you’re going to make are helping your business’s profitability. If you’re considering how to generate income, then set your priorities and make sure that your business is stable before making huge purchases.

Related reading: 6 simple tips to cut business costs

3. You’re Rushing In Hiring Your People

It’s understandable that you want a talented group of employees to help you operate your business. That’s why you never stop hiring. You may be so fascinated with the idea that all your employees will do all the work for you and you’ll just oversee. It may be sound fantastic, but that idea does not always work with a very first business. Hiring is good, but it would be a mess if you keep on getting people to fill your job positions – and you don’t quite understand their work responsibilities. In such cases, there may be a mismatch in skillset, and there may be overlapping workloads. If these things happen, you’ll just suffer from unnecessary costs. What’s with the rush in hiring if your business is not financially and operationally ready?

4. You’re Mixing Work With Personal Emotions

In starting a business, you are required to make sound decisions for the sake of your company. If you’re too emotional in coming up with decisions, you may not be able to handle the business properly. You should prioritize sound decisions over feelings. A successful business will require logical decisions so that you can do whatever is best financially for the business.

5. You’re Taking Your Tax Obligations For Granted

You’ll be in big trouble if you do not adequately plan for tax obligations. When you’re building your very first business, you should expect various kinds of obligations, including federal and state tax obligations. Here’s the catch! When you’re not planning for your upcoming tax duties, your business will most likely suffer. You’ll be stuck with an excessive tax bill to pay, and potentially not enough money to cover it. So, plan your budget well and include your tax liabilities for your smooth business operation.

6. You Have A Combined Business and Personal Account

If your goal is to establish better financial health for your business, start by having a separate business and personal bank accounts. That way, it’s easier to account for expenses and structure the monthly operating budget. Wait, there’s more! When your business account is different from your personal account, you will also prevent your incomes from overlapping, and you’ll see how your business is producing each month. This way, you can also protect your credit standing from damage if your business ends up suffering in the future.

7. You’re Doing Business Without Knowing Your Unique Competitive Advantage

It’s hard to enter the battlefield without a strong weapon. If you don’t know your business’s competitive advantage, you’ll find a hard time competing in the market. Not just that, but you’ll also be wasting a lot of time, money and energy when you are not able to establish your brand in the marketplace. With these, you need to consider some factors such as the type of market you’re selling to, the customer’s preferences, and much more.

8. You’re Handling The Business Yourself

It’s tough when you’re starting out with your very first business. Situations like hiring your employees, setting up your office, and buying office equipment can be costly. So, why not get a business partner? Getting a business partner can be a great help to your business operation – they will be expected to work hard and assist you in your business activities.

9. You’re Not Asking For Help From Others

In most cases, managing a new business is not that easy. You’ll encounter a lot of problems and unanswered questions along the way – and it’s normal that you don’t have all the answers. When you’re new in the business industry, there’s nothing wrong when you also ask help. Consider hiring an accountant, working with someone like Irena’s mobile bookkeeping, or asking for advice from other entrepreneurs. So, give yourself a break and find out who can help you run your business.

Related reading: The entrepreneur’s guide to setting up a business in Australia

10. You’re Not Focusing On Making Your Customers Happy

Poor customer service can also delay your goal of making your brand noticeable in the market – and if it happens, you’re also blocking your business’s way to success. You need to know what your customers really want before spending too much in the first place.

11. You Do Not Have A Good Business Plan

You need a good business plan when looking to start your very first business. It’s true. It’s one way of getting yourself ready for the challenges of running a business. Without a business plan as your back-up, you’ll find that it’s a challenge to sustain your business’s financial stability. You always have to be prepared when/if your business starts to crumble – and you can do that by having a business plan from the beginning.

So, these are the key financial mistakes to avoid when looking to start your very first business. No matter how hard you try not to make mistakes, you still may commit some of these. But, what’s vital here is you’ll learn to better yourself and your business because of your mistakes.

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This a guest post by Irene Mckenzie from Irena’s Bookkeeping based in Sydney, Australia. The views expressed here are of the author’s, and Zegal may not necessarily subscribe to them. You, too, are invited to share your point of view. Learn more about guest blogging for Zegal here.

About Irena Mckenzie

Irena Mckenzie is a Castle Hill local and is a very experienced local, mobile bookkeeper and successful small business owner. She has many years’ experience in all facets of bookkeeping and office work. She has run various small businesses for many years and understands exactly what it takes to get a small business up and running at full speed.

A Guide to Corporate Tax in Hong Kong


So, you’ve decided to set up your business in Hong Kong. What’s not to love about it? With its proximity to the mainland Chinese market and strong government support for innovation, it has emerged as one of the preferred locations for a number of global enterprises.

You’ve gone through all the basic paperwork and you’re wondering what’s next for Setting Up A Company in Hong Kong. Unfortunately, this is where the boring stuff comes in. We’re talking about corporate tax in hong kong. Much like bad coffee, inefficient public transport, and interns submitting their work late, paying taxes is just another one of those inevitable realities of life and doing business.

It might ease your mind a little to first know that Hong Kong generally has a highly attractive hong kong tax regime like profit tax stamp duty in Hong Kong , with low personal and corporate tax rates. In this post, we’ve broken down the essential Hongkong taxes you have to take note of as you go about establishing your business in Hong Kong.

What corporate taxes must I pay as a business owner in Hong Kong?

Companies have to pay what is known as profit tax in Hong Kong at a rate of 16.5% of their assessable profits. Such a corporate tax rate in Hong kong  is considered low when compared against other economic powerhouses in. In Japan for example, the corporate tax rate is 31%, and in South Korea, it is 22%.

In addition to this, companies do not have to pay capital gains tax. Jargon aside, this can be plainly understood to mean a taxation on gains your business makes from the sale of stocks, bonds, precious metals and property, amongst other assets.

Furthermore, businesses do not have to pay value added taxes, or sales taxes. There is also no withholding tax on dividends and interest that are imposed on companies, and no collection of social security benefits. What this means is that dividends from local companies chargeable to tax are exempt from these. On the other hand, it should also be noted that dividends from overseas companies are generally offshore in nature and not subject to tax in Hong Kong.


Who is liable for paying Profits Tax in Hong Kong?

According to the Inland Revenue Ordinance (IRO), a person is liable to pay Hong Kong Profits Tax if the following conditions are met:

  • He carries on a trade, profession or business in Hong Kong;
  • The trade, profession or business derives profits; and
  • The profits arise in or are derived from Hong Kong.

With regard to the last requirement, what is essential to note is that taxation in Hong Kong is based on the territorial source principle. For the uninitiated, this means that companies registered in Hong Kong will only be liable to pay taxes on profits that come from within Hong Kong. It does not have to fork out taxes on profits sourced from outside of Hong Kong.

How do I determine what profits are taxable?

Companies are taxed based on their Assessable Profits, which are the net profits (or loss) [other than profits (or loss) arising from the sale of capital assets] for the basis period, arising in or derived from Hong Kong.

The following sums are excluded from the Assessable Profits:-

  • Dividends received from a corporation which is subject to Hong Kong Profits Tax;
  • Amounts already included in the assessable profits of other persons chargeable to Profits Tax;
  • Interest on Tax Reserve Certificates;
  • Interest on, and any profit made in respect of a bond issued under the Loans Ordinance (Cap. 61) or the Loans (Government Bonds) Ordinance (Cap. 64), or in respect of an Exchange Fund debt instrument or in respect of a Hong Kong dollar-denominated multilateral agency debt instrument;
  • Interest income and trading profits derived from long term debt instruments; and
  • Sums received or accrued in respect of a specified investment scheme by or to the person as: –
    1. a person chargeable to Profits Tax in respect of a mutual fund, unit trust or similar investment scheme that is authorized as a collective investment scheme under section 104 of the Securities and Futures Ordinance (Cap. 571); or
    2. a person chargeable to Profits Tax in respect of a mutual fund, unit trust or similar investment scheme where the Commissioner is satisfied that the mutual fund, unit trust or investment scheme is a bona fide widely held investment scheme which complies with the requirements of a supervisory authority within an acceptable regulatory regime.

When is the filing of Profits Tax returns due?

You must file a different Profits Tax Return to the Inland Revenue Department (IRD) depending on the type of business you operate:

  • Profits Tax Return – Corporations (BIR51)
  • Profits Tax Return – Persons Other Than Corporations (BIR52)
  • Profits Tax Return – In Respect Of Non-Resident Persons (BIR54)

Generally, profits tax return should be filed within 1 month from the date of issue. The compliance date of submission is specified on the first page of the Profits Tax Return. The deadline may be extended by 2 weeks if your business is using Electronic Filing.

Learn about the Profits Tax Return due dates.

If you fail to lodge a tax return by the due date or the extended due date, estimated assessment will be issued and you may be required to pay more tax. You may also be subject to penalty proceedings which include payment of penalty, or even prosecuted.

Taxes for Individuals

It is also important to take note of the tax rates for individuals in Hong Kong. This would be important knowledge for both you and your potential employees to be aware of in brief.

The table below effectively sums up the various levels of tax you will have to pay, based on your income bracket.

Income (in HKD currency)

Tax rate

1 – 40,000 HKD


40,001 – 80,000 HKD


80,001 – 120,000 HKD


Above 120,000 HKD


Tax rate on capital gains


Tax rate on income earned overseas


Tax rate on dividends from a Hong Kong company


Again, compared to other parts of the world and the Asia Pacific, Hong Kong’s personal income stands at a comparatively low percentage. This makes it even easier for you to build a team, and manage your finances as an employer.

Summing Up

In sum, taxation is a fairly forgiving affair in Hong Kong for businesses. With low corporate and personal tax rates, it comes as no surprise that it remains as one of the top locations to do business in the Asia Pacific.

This aside, you should also be careful to note that corporate tax is not the only applicable tax for companies in Hong Kong. Other taxes that are typically levied on companies such as property tax and the stamp duty still apply.

Learn about stamp duty in Hong Kong.

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A Little Savings Go A Long Way For Small Businesses


Every business has no shortage of business problems. However, the type of woes that small businesses face are relatively different from their larger counterparts.

For small businesses, the majority of these problems are due to revenue and cash flow. This is largely due to the diminutive nature of their business, making them unable to enjoy the same financial advantages as large companies.

The last thing that every small business owner will want is to be riddled with cash flow issues. It does not help a small business if the profits earned are unable to fund employees’ payroll or if the cash-on-hand is dipping into the negatives on the balance sheet.

Related reading: 4 tips for saving time on small business administration

Similar to personal savings, every small business should protect their liquidity by ensuring that they have sufficient buffers of cash. The way to go about is to save.

Here are some ways in which a small business can save without compromising on operations.

Purchase Secondhand Items

This applies to office furniture, vehicles or even equipment. The cost savings between purchasing new versus old can be substantial. Of course, only purchase what is necessary instead of simply buying everything that looks “good”.

Make Use Of Community Resources

This could come in the form of government funding or sponsorships. In Singapore, there are numerous fundings for start-ups and small businesses such as Startup SG Equity, managed by SPRING Singapore, as well as the Productivity and Innovation Credit (PIC), an initiative under the Inland Revenue Authority of Singapore which allows businesses to enjoy discounted tax deductions.

Be Savvy With Money

Maximise cash rebates and sign up for loyalty programs for routine office purchases. It could be using a particular corporate card to enjoy cash rebates on office supplies or an airline loyal program should there be business travels. Small rebates and savings will accumulate over time, increasing the business’ savings in the long run.

Setting aside savings to ensure sufficient liquid cash for the business requires concentrated and conscious efforts from the small business owner or Accounting team. Ideally, there should be a target savings amount that the business should work towards. Once the target savings amount is achieved, it should of course, be set to the next higher amount. With discipline and mindful efforts, this will certainly provide the business with sufficient extra cash in the long run.

Start managing your legal needs with Zegal today

This a guest post by RenQun Huang of Gpayroll. The views expressed here are of the author’s, and Zegal may not necessarily subscribe to them. You, too, are invited to share your point of view. Learn more about guest blogging for Zegal here.

About Gpayroll

Gpayroll is an easy to use, self-run online payroll service that will redefine and revolutionize the payroll industry. Its intuitive and automated system will help business owners focus on their core business without the hassle of managing payroll.

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