This list provides you with a handy reference for ensuring that you have all the required documentation on hand as required by the Inland Revenue Department.

Ensure that before you start up your business that you have systems in place for the following essential records. Time spent setting these up in an orderly and easy to understand manner will save you hours or even days and weeks of stress and frustration later on. Having all records on hand when you need them will save you money (accounting fees, IRD late payment penalties etc) and will give you the information you need to make the important decisions in your business.

Your records must include:

BANKING RECORDS

• Cheque books
• Deposit books
• Bank statements
• Electronic records
• Withdrawing money for personal use (that is, drawings)

RECORDS OF YOUR INCOME

• Tax invoices
• Other invoices
• Credit card sales
• Debit notes
• Credit notes
• Cash register tape
• Electronic records

RECORDS OF YOUR EXPENSES

• Invoices for purchases
• Receipts
• Credit card purchases
• Electronic records

OTHER

• Cashbooks
• Petty cashbooks
• Wagebooks
• Other relevant

ACCOUNTS RECEIVABLE DAYS

Accounts Receivable Days is the result of a formula calculating the average number of days it takes customers to pay from date of invoice until you receive payment.

  Accounts Receivable Days = Accounts Receivable/Revenue x Time Period  

(e.g. Accounts Receivable = $150,000
  Revenue =$800,000
  Time Period =365 days
  150,000/800,000x365 = 51

 This example indicates that a business with Revenue of $800,000 and Accounts Receivable of $150,000 is taking, on average, 51 days to collect payment from its customers.

  The value of knowing the Accounts Receivable Days Driver of 51 is that the business now has a simple indicator to work with and use as a starting point to measure improvement. If the business could get the Accounts Receivable Days Driver down to 34, that would put $50,000 back into their bank account. Depending on the profitability of the business this could cover a month’s overheads. Imagine how much better the business owner would feel having an extra month’s overheads in the bank.

 Another benefit of knowing this number as opposed to just looking at the dollar value of amounts owed by customers, is that it’s a relative figure. E.g. using the above example if the Accounts Receivable rises to $250,000 is this good or bad? It depends on the relative Revenue figure. This makes it immediately more difficult to manage. Whereas tracking one number is an easy indicator to manage, both for the business owner and the accountant or bookkeeper.

 Importantly, if this is a growing business wanting to fund growth through external debt i.e. borrowings, any lender would look very closely at this number. It’s a prime indicator of how well the business manages its own money and therefore how it would manage the lender’s funds.

 Many businesses grow rapidly and get very focused on Revenue growth. This is fine but focus also needs to be on collecting payment for sales made. If not, cash-flow can quickly get squeezed, which can strangle any hope of continued business growth. It becomes a vicious circle, as a lender won’t lend the necessary funds until the business demonstrates it has firm control over its cash-flow.

MANAGING ACCOUNTS RECEIVABLE DAYS

  It really boils down to making sure you get paid as quickly as possible. A retail business doesn’t have this type of problem as it gets paid immediately, however most other businesses give ‘customer credit terms’. Following are some tactics you can use to shorten the Accounts Receivable Days:
 • Invoice as quickly as possible – have a system and a person responsible for this  process.
 • Ensure your customers know the credit terms – if you leave them in the dark they   will decide for themselves what the terms are.
 • Provide professional looking invoices – it indicates you are serious about debt  collection.
 • Send out statements regularly –it reminds customers again that you are serious.
 • Be prepared to chase up with phone calls and emails.
 • Keep records of excuses given for non payment and politely repeat back to slow  payers why they didn’t pay last time. They soon get the message you are ‘on the   ball’ and you will be first on the list for payment.
 • Be prepared to take legal action against those who refuse to pay. This may sound like an extreme   measure but unless you are really dependant upon one or a small number of  customers you may be better off without slow payers. They may be costing you  valuable resources you could be using to service better payers.
 • Remember the longer you leave a debt outstanding the harder it is to collect, so  anything you can do to speed up the process increases your chance of getting  paid.