The Australian Tax Office (ATO) has cracked down on tax underpayment in the past year. In doing so, they’ve drawn particular attention to superannuation payments, which a large proportion of businesses chronically fail to pay on time. This is in many cases because businesses borrow their employees’ superannuation to cover budget shortfalls, and then catch up on payments when their financial situation improves.

shutterstock 368054765 300x200 - Superannuation underpayments highlight the need for better cash flow solutions

In an effort to end this practice of using superannuation as a cash flow management tool, the ATO enabled employees to review employer contribution amounts and their total super balance through myGov starting March 2019. Since then, the number of complaints by employees regarding employer underpayments has surged to the point that the ATO has not been able to meet its performance commitment to resolve the majority of cases within 4 months.

Many businesses, however, underpay out of simple ignorance of their obligations. Regardless of the cause, pressure has been mounting on businesses to step up. To solve the problem, employers need support in learning both about their obligations, and about their cash flow management options.

Payroll software is often hopelessly outdated

The rollout of Single Touch Payroll (STP) reporting has highlighted just how few businesses are using modern payroll software. According to the Australian Payroll Association, approximately 80 percent of businesses in the country haven’t updated their payroll software in 20 years, since the turn of the millennium. Not only does this mean that their software is outdated, it often also means that businesses are using the wrong software.

Digital payroll management systems are often adopted relatively early in a business’ development. Due to cost concerns, the software they use is often designed specifically and exclusively for smaller businesses, and should be replaced with something more appropriate when the business grows larger. Not doing so makes it difficult to reliably manage their tax obligations. In some cases, businesses are unaware that they’ve done anything wrong until the ATO comes knocking.

Businesses are hesitant to lodge tax returns

Businesses who know that they’re behind on superannuation payments often don’t know what to do. Fearing what will happen when they get their lodgements up to date, they avoid doing so as long as possible. After all, they’re behind on payments because of cash flow issues, and can’t simply pay up. Discussing the issue on MyBusiness’ podcast last month, ATO assistant commissioner Peter Holt urged businesses to seek support from the tax office and from their tax agents. Once their lodgements are up to date, he says, the ATO will work with businesses on payment arrangements for any outstanding debts.

Better cash flow solutions are the key

Businesses who borrow their employees’ superannuation don’t do so for fun, but rather because they need money to keep their business operational in the short term. In order to reliably end this practice, those businesses need better cash flow management tools. Fortunately, these tools already exist, and are readily accessible to most businesses.

Invoice finance

The most accessible and versatile tool available to businesses of any size is invoice financing. This allows them to deal with any type of budget shortfall or cash flow interruption almost instantly, making it an ideal default cash flow solution.

To factor an invoice, the business simply submits it to their financial institution after issuing it to the customer. In exchange, the financial institution will pay out the majority of the value of the invoice up front, giving the business immediate access to the cash they need. The financial institution will then manage collection of the payment from the customer, before paying out most of the remaining funds, minus a predetermined fee.

Supply chain finance

Supply chain finance is a way to manage supply costs in the near term, and to free up working capital for other uses. It can also be used to deal with cash flow interruptions, but it’s ideal for businesses who are looking for a way to take advantage of a short term growth opportunity.

For example, businesses often need to stock more products and hire additional temporary workers to be able to manage the holiday rush. Instead of paying directly, the business’ financial institution can pay suppliers on time on their behalf, deferring the business’ payment by up to 90 days. As a result, the working capital they save can instead be spent on other preparations, like hiring additional temporary workers.

With more to spend on both stock and temporary workers, the business can maximise its profits during the holidays, and make payment after the dust has settled. Most importantly, it allows the business to pursue growth opportunities without risking employee assets to do so. These kinds of cash flow management tools allow businesses to get the cash they need when they need it, without risking the ire of the ATO.

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