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Extending Credit
Fortune Hunter

WebmasterWorld Senior Member 10+ Year Member

Msg#: 3958365 posted 7:53 pm on Jul 23, 2009 (gmt 0)

I am discovering with this recession that many small businesses still want to do web site projects, but many of them are predictably "low on cash" hence the problem. I want to bring in new accounts and in many of these cases I know these people. I am considering extending credit or setting up payment plans for clients.

My thinking is I can continue to follow my existing policies where I ask for 50% down and the remainder on completion or partial payments until complete depending on how quick the project is going. Unfortunately most small businesses don't seem to have that type of cash laying around any more.

My thought is if I broke payments into 12 months or 4 payments or some other type of bite sized arrangement I could bring in new work and set up some predictable monthly income streams for a period of time and help these people out at the same time. Not as great as large pay day projects, but probably more realistic in this economy.

Obviously the issues of extending credit is missed payments or worse no payments and outright defaults. Sure I can probably remove the web site when that happens, but unfortunately I am still out the time.

Any advice about how or policies used from others would be much appreciated.



10+ Year Member

Msg#: 3958365 posted 11:34 pm on Aug 14, 2009 (gmt 0)

We don't offer traditional credit, but we do take payments (interest free) for a period of not more than 6 months. The payments are non refundable, and the product does not ship until the last payment is complete.

An increasing number of our customers have been using this option so far this year.

Maybe you could offer a similar layaway program to your customers-hosting the site on your own server as incredibill wisely recommended.

Fortune Hunter

WebmasterWorld Senior Member 10+ Year Member

Msg#: 3958365 posted 11:24 pm on Aug 31, 2009 (gmt 0)

...services that have been performed, but not yet paid for, are recorded in your books as either accounts receivable or notes receivable. After a reasonable period of time, if you have tried to collect the amount due, but are unable to do so, the uncollectible part becomes a business bad debt.

This is great! I thought you could never write this stuff off. My accountant said I couldn't because I was a cash basis accounting. I think I need an new accountant!

Fortune Hunter

WebmasterWorld Senior Member 10+ Year Member

Msg#: 3958365 posted 11:32 pm on Aug 31, 2009 (gmt 0)

Oops, spoke too soon. I just went out and read the page Asia posted. You can only claim the write off if you use accrual method of accounting.

If you use the cash method of accounting, generally, you report income when you receive payment. You cannot claim a bad debt deduction for amounts owed to you because you never included those amounts in income. For example, a cash basis architect cannot claim a bad debt deduction if a client fails to pay the bill because the architect's fee was never included in income.

So Jastra is really correct that this is still a bitter pill when you are out the time and never actually collect the cash to boot. If you do use accrual all you are doing is simply deducting income you already claimed and therefore paid taxes on. You aren't actually able to "write off" your lost time on debt like this. The best you can do is get back taxes you paid based on income you never received, but did claim for tax purposes.

If you use cash basis accounting, as I do, and someone doesn't pay you, tough luck. You are out the time and the money. According to the IRS I can write off this lost time/income against other income already earned and collected for example.


WebmasterWorld Senior Member 10+ Year Member

Msg#: 3958365 posted 8:28 am on Sep 1, 2009 (gmt 0)

@Fortune Hunter no, you are no worse off there. Let me see if I can explain.
If you use the accrual method, you increase your income by the owed amount.
Think of a graph, and you increase a column by the amount owed, and you tax will be a percentage of that.
When it is not paid, being able to 'write it off' means you bring the total (the height of the column) back down, so the tax is a smaller amount.
You don't actually get a benefit from 'writing it off', its more like not having to pay tax on the bad debt as it "didn't happen" as far as the books are concerned.

With the cash method, the column never got that extra height in the first place, so you don't need to take the amount out.

Disco Legend Zeke

5+ Year Member

Msg#: 3958365 posted 1:29 pm on Sep 1, 2009 (gmt 0)

look at the customer's desk and be sure there are no razor blades or mirrors.

when it comes time to pay, his nose will get the money instead of you.

this is from experience.


WebmasterWorld Senior Member vincevincevince us a WebmasterWorld Top Contributor of All Time 10+ Year Member

Msg#: 3958365 posted 1:47 am on Sep 2, 2009 (gmt 0)

leadegroot has it right. With cash basis accounting your bad debts are automatically written off and you receive full relief on them. This is an advantage of cash basis accounting for small businesses.

With cash basis accounting, the invoice you send out does not appear as an asset unless and until it is paid. If it is paid late, it it appears in a later period.

On an accrual basis (more usual for larger businesses and the legal requirement in many countries including the UK) as soon as you invoice (or are entitled to invoice even if you don't send it) you record that value as an asset. Tax is usually due based on the date of invoice. Because tax authorities hate giving back money, you need to demonstrate that there is really no way to collect on the invoice before you can get relief on the bad debt (remove the invoice again from the books).


WebmasterWorld Administrator lifeinasia us a WebmasterWorld Top Contributor of All Time 5+ Year Member Top Contributors Of The Month

Msg#: 3958365 posted 3:39 pm on Sep 2, 2009 (gmt 0)

I wouldn't exactly call it "relief." I would rather have the revenue and pay x% tax on it instead of 0% tax on $0 revenue.

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