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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.
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.
...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!
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.
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.
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).