How can I make payments in my business?
As much as a business likes to watch the money flow in, it’s also important to ensure your key people – such as your suppliers and staff – are paid in a timely manner. Using the right payment methods can save you time and give you a clearer picture of your business’ cash flow position.
The best approach to making payments depends on a number of factors including the location of your suppliers, the size and frequency of orders, your day to day payment needs, and the number of people in your workforce. All of which means you may use a variety of payment methods.
For smaller transactions, a business credit card or business debit card could be the most convenient and measurable way to pay.
With the interest-free period of a credit card, using it to make purchases is like having a short-term loan you can pay off each month – or pay interest on. With a debit card on the other hand, you are drawing on funds in your bank account, so your account balance is effectively your limit.
Both types of card have the benefit of cashless convenience, and with some credit cards you can earn rewards for business purchases.
As is the case with your business bank account, with credit cards it can be a good idea not to use a personal card for business expenses. Downloading your business-only transactions as a spreadsheet will help with accounting and keeping your personal and business finances separate makes tax time much easier.
To help speed up reconciliation, some banks – including Westpac – offer integration directly with small business accounting software through online banking.
Your suppliers will dictate how they wish to receive payments, and may offer options that include cash, cheque, electronic funds transfer and BPAY®. Cheques are becoming less popular due to their turnaround times.
Electronic funds transfer gives you an automated method to make payments through your online banking. Payments can be scheduled, so you can hold onto your cash until the final payable date, and with some banks – including Westpac – you can set up multiple payments at one time to pay in batches.
Other time-saving payment features you may be able to access include importing payee files and creating payment templates.
You’ll need to go through a separate application process to get a business credit card, which will involve verification of your financial situation and income. Many types of card are available, including some that offer rewards points and others low interest, so think about what suits your specific needs when you compare business credit cards.
Paying overseas suppliers can be more complex, as you’re exposed to exchange rate movements and foreign exchange fees. The best method depends on how frequent and large your transactions are.
For smaller, irregular payments, and if your supplier accepts, you may find it simpler to use credit cards.
If your business regularly relies on importing, you may wish to investigate a more cost-effective option. For example, you might find that your bank offers a feature allowing you to transfer money internationally as part of your internet banking. The exchange rate offered on these accounts tends to be more competitive than credit card rates.
You might also find that the larger the transactions, the better the exchange rate.
It’s hard to avoid the trials and tribulations of exchange rates. Two ways to reduce them are:
1. Set-up foreign currency accounts in the currencies of your suppliers.
By making payments in their currency, you reduce the exchange rate risk – and you can transfer money either way when the rate is favourable.
2. Fix the price on contracts.
This means keeping watch on the exchange rate and its predicted movements. If your transactions have a small margin, then fixing protects your profit. On larger margin sales, you’ll be taking more risk if you don’t fix, both of a reduced margin and also a windfall.
Other foreign exchange risk management options are available, so you may wish to consider speaking to a foreign exchange risk management dealer.
Your team members are your most important stakeholders and you can’t afford to be late with payments.
If you have more than just a few staff members, hand over the details to a payroll manager or bookkeeper if you can and let them manage and calculate payments. Remember, you need to accrue personal leave, annual leave, superannuation payments and allow for flexible hours.
There are packages where you simply provide a spreadsheet with all the details, or there are software packages where you input the data. Ensure their package integrates with your accounting software, as you’ll need this information to calculate taxes, such as payroll tax.
If you’re making your own staff payments using small business accounting software, online banking features such as bank feeds and batch payments will simplify your accounting.
Making payments and paying staff, while managing the accounting associated with these transactions, is quicker and easier than ever through online banking. It’s well worth checking out all the timesaving features now available.
Westpac’s products are subject to terms, conditions, fees and charges; and certain eligibility criteria may apply. Before making a decision, read the disclosure documents for your selected product or service, including our and the Product Disclosure Statement and T&Cs for Westpac business credit cards, business debit cards, business bank accounts, online banking and foreign currency accounts; and consider if the product is right for you.
The information in this article is general in nature; does not take your objectives, financial situation or needs into account; and does not constitute financial or taxation advice. Consider its appropriateness to these factors; and we recommend you seek independent professional advice about your specific circumstances before making any decisions.
BPAY® is a registered trademark of BPAY Pty Ltd ABN 69 079 137 518.