Most of these will be Tax Invoices. You should be aware of your responsibilities for paying invoices and the GST. If the invoice you are paying does not have an ABN, or is not clearly marked as a ‘Tax Invoice’, or does not indicate the GST being paid, you may be required to withhold 48.5% of the payment. The Tax Invoice also needs to be clearly marked to indicate the amount of GST being paid or included, otherwise you may not be able to claim an input tax credit. You should check every invoice before payment, and if in doubt, contact your accountant or the Australian Tax Office. (In some cases, other documentation is acceptable. See Tax Invoices.)
How and when you pay these accounts will affect the Cash Flow of your organisation. It is good practice to ensure that accounts are not paid too soon, or too late.
To methodically manage when to pay your accounts...
- Use a desk diary or other simple system to record the last acceptable date for payment of accounts (See the example Payables Timetable).
- As invoices for payment are received, check that they comply with the GST (eg circle in red the ABN, the words Tax Invoice, the amount of GST or that GST is inclusive in the price, and your details if the amount exceeds $1,000). For further details, see (What if the invoice does not have all these details?). Place the invoice in the front of the folder and record the latest possible date for payment in the diary or on the timetable. As reminders appear in the diary or the timetable, find the Invoice in this file, prepare the cheque for payment, record the details of the invoice (including GST) on the cheque butt or the cash payments journal. Then mark the invoice 'Paid' with the date, the cheque number (or receipt number if paid by credit card) and the amount if not paid in full.
- File the invoice in the 'Bills we have paid & other receipts' file.
- Instruct the person paying the accounts that they should not pay any account before the last acceptable date for payment.
- Institute a system to ensure that only original authorised invoices will trigger a payment. Cashflow is inhibited when accounts are paid twice for example when an unauthorised or duplicate invoice is processed for payment, or when payment is made against a statement. This also reflects poorly on the professionalism of the service. (See here for a discussion about Cashflow).
- Ensure that the terms of payment are acceptable before purchasing goods. For example, any comparative cost benefit which a particular good or service might have, could be diminished when compared to a product with much better payment terms.
For expensive items, consider paying for these over time rather than on delivery.
Statements
Statements are often sent out by creditors as a mean of informing you how much you owe them, how much you have paid, and whether there remain any amounts outstanding in relation to the terms of credit.
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Statements can be useful to check whether you have all the invoices which the supplier believes they have sent you, and whether the supplier has received all the payments you believe you have made. The statement will also usually identify any charges which may not be separately invoiced, such as account keeping charges, or freight.
When paying accounts, it is important to distinguish payment of invoices and payment of statements. If you do not have an invoice which is identified on the statement, contact the supplier to send you a duplicate. You should sight the invoice to ensure that it is in order for GST purposes, and that it reflects the supply of goods or services which you ordered and received.
'Only pay on invoice' should be a cardinal rule when managing creditors. Paying careful attention to your creditors can not only improve your cashflow, it will also give you a clearer picture of the debts which are outstanding at any one time.
What if the invoice does not have all these details?
The Tax Invoice must have all the required details in order for you to be able to claim the GST as an input tax credit. That is it must show
- the name of the supplier
- the supplier's ABN
- the GST inclusive price of the supply
- the words 'Tax Invoice' prominently displayed
- the date of issue
- a brief description of the supply
- either the specific amount of GST payable, or a statement saying that the total price includes GST.
- If the amount is for more $1000, it should also show the recipients ABN or name and address.
The ABN should be quoted on all documentation that relates to a supply of goods or services. It is usually printed on the Tax Invoice, but it is acceptable if the ABN is quoted on other attached documents such as:
- quotation which formed the basis for the supply;
- an invoice you created because the supplier did not provide you one;
- a renewal notice for insurance;
- motor vehicle registration, magazine subscriptions, etc;
- an order form contracts lease documents;
- catalogues and magazines as well as other promotional material.
Also, if you receive goods or services from a supplier on a regular basis, they can give you a periodic quotation with their ABN, which covers all the supplies they make to your organisation for a specified period of time - eg a financial year. You must, however, keep all records that can verify the supplier, the supplier's ABN, and the payments you made relating to the supply.
The purchaser has the right to request a valid Tax Invoice, which the supplier has 28 days to provide. If the supplier cannot or will not provide the valid Tax Invoice, the purchaser should contact the ATO with the supplier's details.
If no ABN is quoted you do not have to withhold if:
The supplier is an individual (not a business); the supply is of a domestic or private nature; it's part of a private recreational pursuit or hobby; the supplier is exempt from income tax, such as a religious institution, school, etc
The supplier should provide you with a written statement (statement by a supplier) which can be ordered from ATO, or downloaded here.
If the total payment for the goods or services is more than $50 excluding the GST, you will have to withhold 48.5% of the payment, and pay it to the ATO as part of the Pay As You Go (PAYG) on your next Business Activity Statement (BAS).
When you pay the supplier the remaining 51.5%, you should give the supplier an original and a copy of a Payment Summary form. The supplier will need to attach the copy of the Payment Summary to their tax return. You will need your copy of the Payments Summary Form to help prepare your annual report for PAYG. This will be sent to you by the ATO.