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Invoices and bills are basically the same things, right? Not really. Although they’re both commercial documents, they have distinct differences between them and are used at different times during a business transaction. 

As a business owner, you may have heard the term “bill” when someone refers to an invoice or vice versa. And at some point, you’ve likely had to send both of these items to your customers. 

We’ve already discussed the differences between an invoice and a receipt in our article, Invoice vs Receipt. Today we’ll dive into the differences between invoices and bills.

What Is an Invoice?

Simply put, an invoice is a request for payment. A business will issue this to its customers after providing products or services so they can collect payment for what was supplied. It includes information such as: 

• An itemized list of products and services 
• Total amount due
• Payment terms (Net 15, 30, 60, etc.)
• Invoice date
• Invoice number
• Company contact details
• Customer contact information
• Payment due date

Including these sections lays out clear details on what’s expected of the customer and when so there’s no confusion about what the invoice is for or when the payment is due. And if a problem arises, the customer can get in contact with the business for questions.

Invoices are common use for businesses such as contractors, freelancers, and vendors. A sales invoice also comes in different forms. You might see a paper invoice, email, or PDF. The most effective way to send a professional invoice is by using accounting software. 

With Lendio’s free mobile app, you can send invoices digitally so you always have a record of what you’ve sent. Sending invoices and keeping good records of them is important for three reasons:

1. It helps the business keep track of inventory. Inventory accountants match up purchase orders with invoices to verify inventory and income in the accounting process. 
2. It’s a legal document. Invoices prove that your business provided products or services. If you aren’t receiving payment from a client, the invoice and other subsequent documents can be used to enforce payment through the legal system. 
3. Outstanding invoices are apparent. Invoicing multiple customers gets confusing without accurate records. Using invoicing software can alert you to unpaid invoices. It takes the guesswork out of getting paid and improves cash flow. 

What Is a Bill?

A bill is a request for payment too, but it’s a bit different. Think of how you might ask for the bill when visiting a restaurant. You’re obviously not going to tell your waiter that you’ll pay for your food in 30 days. That’ll get you some strange looks and a visit from the manager. 

Instead, you pay for the meal right then and there. Billing covers a one-time transaction and requires immediate payment. It acts as proof that goods and services were provided the same way invoices do. Instead of accepting payment on a future date, it’s expected right away. 

Billing is a common practice with several types of establishments. Places like retail stores, restaurants, nail and hair salons, or hotels. When you see the bill, it’ll have a few key categories that are common for this type of document. 

• Total amount plus sales tax
• Date of purchase
• A list of what was purchased
• Number of items purchased

Before handing over a payment method, the buyer reviews the charges listed on the bill for accuracy. If any errors appear, there’s a chance to discuss that with the vendor and have them corrected before making a payment. 

Once the payment goes through, the service provider issues a receipt to the buyer proving that they completed their purchase. If the buyer decides to contact customer service to return the merchandise, a credit memo is created to process the return and account for inventory. 

The Differences Between an Invoice and a Bill

Invoices and bills might still seem pretty similar at this point. They’re both issued after a service or product is provided. They both include similar information. And they’re both proof that goods and services were rendered, but not yet paid for. A receipt confirms payment for both. 

They have a lot of similarities, but there are several differences too. To truly understand whether a document is an invoice or a bill, you have to ask yourself a few questions. 

One Time or Every Time?

One of the main differences between an invoice and a bill is the circumstances they’re issued under. Invoicing happens when there’s a recurring need for goods being supplied by the business. They’re made for long-term interactions. 

For this reason, many businesses have recurring invoices. They’re sent on a billing cycle where the customer might have the option to set up recurring payments. 

This makes the invoicing process easier for everyone. The frequency of invoices is agreed on ahead of time by both parties. 

While invoices can be issued for one-time transactions, it’s not typical. Bills, on the other hand, are issued for one-and-done transactions. Each time you visit a dentist's office, hotel, or restaurant, you get a bill at the end of your visit. 

These are short-term transactions that usually aren’t recurring. Since payment is due immediately, your transaction ends once you have a receipt in hand.

When Is Payment Due?

Businesses that send invoices have set an agreed-upon date that payments are due with each customer. Invoice payment terms consist of net 30, 60, or 90 days, so a business is essentially extending credit to the person or company making a transaction with them.

Bills don’t have the option to pay later. Instead, you have to submit payment in the form of cash, credit card, or debit when the bill is given to you. When the payment goes through, a receipt is printed and handed to you as confirmation of the purchase. 

It’s helpful to have invoices in a situation when you’re running a business that makes large supply orders every month based on projected sales. The funds for the supply order might be based on the income from the sales you’ve made. 

So a net 30 arrangement with a vendor would help you continue to meet customer demand while regularly getting the supplies you need to stay in business. 

Some projects may require a 50% deposit for services rendered before starting work. In these cases, term invoices also account for advance payments made by the customer. 

What Kind Of Information Is Included?

A crucial point in the invoice vs bill comparison is the level of information included in the document. Since invoices are used for purposes like taxes, legal proceedings, and financing, they have to contain very specific information to meet legal document standards. 

Standards like a unique invoice number, the word “invoice”, and/or contact details for the business and the buyer. This is all in addition to the information we mentioned earlier.

The same information isn’t required to be on a bill. Traditionally, bills contain limited information about the transaction. There’s no need to include customer details, payment terms, or a due date since it’s being paid now. 

Who’s Sending It? 

The biggest difference between an invoice and a bill is who’s sending it.  If you’re on the receiving end of an invoice, then it would be a bill to you because it’s a request for payment that you have to fulfill. However, if you’re the one sending it to a customer, it would be an invoice. 

This is one of the few situations where the two terms could be used interchangeably. As a customer, you get a bill and you’re expecting a receipt after paying. If you’re the business issuing the request for payment, then you’re the one sending the receipt after getting paid.

Overall, invoice and bill are two distinctly different terms. Invoices are used by businesses and bills are usually received by customers. While they might be used interchangeably, it’s important to know the difference and when to use both.

Limited liability companies (LLCs) are the most flexible business structure for tax purposes. While that versatility can be advantageous, it can also complicate figuring out the right way to take money out of your business.

If you’re the sole business owner of a limited liability company, here’s what you should know on how to pay yourself with a single-member LLC. We’ll cover each option, when they’re appropriate, and the tax implications of the most common approach.

Can a Single-Member LLC Pay Themselves?

You can pay yourself from a single-member LLC in multiple ways, but there’s a required method for each situation. It primarily depends on how you elect to treat your small business for tax purposes. You have three options:

• Default: If you file no additional paperwork, your single-member LLC is taxable as a sole proprietorship. That means you must pay yourself exclusively through the owner's draws.
• S Corporation: If you file Form 2553 with the Internal Revenue Service (IRS), they’ll treat your LLC as an S corp for tax purposes. You must pay yourself a reasonable salary, but you can also take any remaining profits as distributions. 
• C Corporation: If you file Form 8832 with the IRS, they’ll treat your LLC as a C corp for tax purposes. You must pay yourself a salary that equals reasonable compensation if you’re involved in the day-to-day operations. However, you can also pay yourself whatever business profit is left over by issuing dividends.

Whichever taxation method you choose, you’ll always be able to pay yourself from your single-member LLC. However, the methods you use to transfer the funds differ, as will their tax consequences at the personal and business levels.

This article focuses on paying yourself from a single-member LLC the default way. Once again, in that case, you’re a sole proprietor for tax purposes and must pay yourself with LLC owner’s draws. You can’t take a salary, distribution, or dividend.

How Do I Pay Myself From My LLC?

Assuming your single-member LLC receives the default tax treatment from the IRS, you’ll need to pay yourself with the owner’s draws. That sounds formal, but there’s no official way to do this. It just means taking money out of your business to pay yourself.

In practice, business owners can complete an owner’s draw in any of the following ways:

• Writing yourself a check from your business account
• Withdrawing the funds in cash from your business bank account
• Electronically transferring funds from your business to your personal account

Ultimately, it doesn’t matter which method you use to transfer your LLC profits to yourself. It’s simply a matter of convenience. The tax consequences are identical, and the transactions show up in your accounting records the same way too.

To document an owner’s draw, you will need to decrease your business’s cash balance and retained earnings accounts by crediting the former and debiting the latter.

Unlike a salary, owner’s draws don’t have to follow a schedule or stick to a fixed amount unless you set them up as a guaranteed payment in your operating agreement. As a result, you can adjust them to match your business's cash flow throughout the year.

Using software to track your business transactions makes maintaining your financial statements much easier. Fortunately, Lendio offers free accounting software for small business. Give it a try today!

How Are Owner’s Draws Taxed?

Taking an owner’s draw from an LLC is generally a non-taxable event. However, that doesn’t mean you don’t pay taxes on the amount. Instead, you incur your tax liability on those funds prior to the owner's draw, so the transfer is mostly irrelevant.

Single-member LLCs taxable as sole proprietorships are pass-through entities in the eyes of the IRS. That means the IRS disregards them for tax purposes, and you won't pay any corporate tax for the company.

As a result, your business income is taxable at the personal level whether or not you withdraw it. The tax liability for whatever money you generate automatically flows through to your personal tax return.

Because you're not taking a salary, you can't pay your taxes through withholding from your payroll. Instead, you'll need to make estimated tax payments each quarter throughout the year.

Here’s an example to demonstrate how it works. Say you’re the sole LLC member of an LLC taxable as a sole proprietorship. In 2021, you earn $100,000 in net income through your business.

At this point, you already know you’ve generated $100,000 in taxable earnings and would owe income tax and self-employment tax on the entire amount.

You then decide to take $75,000 in owner’s draws and leave $25,000 in the business bank account to cover upcoming company expenses. However, that doesn’t impact your tax liability for the year. You still pay taxes on the $100,000 of earnings.

Do I Need To Pay Payroll Taxes?

If you own a profitable single-member LLC, you’re going to owe payroll taxes. However, the portion of your income subject to them varies depending on your business entity's tax treatment.

Remember, "payroll tax" is a term that includes multiple subsidiary taxes. Generally, the most significant payroll taxes are the Federal Insurance Contributions Act (FICA) taxes: 12.4% tax for Social Security and 2.9% tax for Medicare.

If your single-member LLC is taxable as a sole proprietorship, you’ll need to pay FICA tax on your business’s net earnings each year. Whether you pay yourself via owner's draws or keep the money in your company, your FICA tax liability will be the same.

However, it’s more common to refer to these taxes as self-employment taxes in this situation since you’re not actually running payroll. That said, these are the same taxes that businesses running payroll incur on any wages paid.

For example, if you file an election to treat your single-member LLC as a corporation, you’ll generally need to pay FICA taxes on your reasonable salary.

Consider Consulting a Tax Expert

The average independent contractor has a more complicated personal tax return than the typical employee. As a result, it’s often worth engaging a Certified Public Accountant (CPA) as a small business owner, even if you’re operating as a sole proprietor.

If you’ve formed a single-member LLC and want to optimize the way you pay yourself for tax purposes, your business is almost certainly complex enough to warrant hiring a CPA.

The price of their services is a tax-deductible business expense, and they’ll likely save you enough in taxes to justify the cost. Consider getting expert tax advice today!

Accounting software makes tax time much easier for you and your CPA. Fortunately, Lendio offers a free small business accounting app. Give it a try today!

*The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.

Debt collection is arguably one of the least fun parts of running a small business. While most people would rather avoid it at all costs, it will actually cost you to avoid it. There are a few things you can do to make this process easier for yourself and your customers. 

In this article, we’ll go over eight successful debt collection techniques you can employ to make the most out of your aging accounts receivable. 

Tip 1: Maintain Consistent Contact

It’s about the methods you use as well. Knowing what form of communication your customers respond to the best and what time they’re able to take your call is an important part of the debt collection process. 

One of the best debt collection strategies is the omnichannel approach. This approach essentially uses all known methods to contact your customer at the right times. This includes:

• Email
• Phone calls
• USPS mail
• Mobile app
• Automated texts

An example of this is sending a reminder email with a link to an online payment portal. The chance to resolve the payment issue through an online portal or a mobile app is extremely helpful in getting unpaid debt off your books. 

Tip 2: Make Payment Terms Clear

If your client then has complaints or is confused about the terms of the agreement, you can quickly address those concerns so there’s no further issue. With unclear terms and no contract, it will be much more difficult to enact debt recovery practices with success. 

As a best practice, you shouldn’t begin any work without a signed contract in place that provides specific details on:

• What you’re being paid for
• How you’ll be paid
• When payment is due
• What’s considered late 
• Any consequences for late payment

Tip 3: Make Paying Easy

When your payment process is inconvenient, it obstructs your ability to get paid on time. That impacts your cash flow. Streamline your bookkeeping and your payment process with accounting software. 

Tip 4: Have Empathy, But Keep it Professional

Showing empathy when customers are going through a rough time helps maintain your relationship with them and allows you both to come to a solution on the overdue payments. This might result in offering them a payment plan to help them get caught up. 

Other times you’re dealing with someone who is actively trying to avoid paying. It’s important not to make any assumptions about the customer’s situation. Try to be customer and solution-oriented. Have empathy towards the customer, but be direct about resolving the issue.

If they get abrasive during your conversation, you still have to keep a level head. Professionalism is part of your reputation. Unlike professional debt collectors, you’re likely not trained to handle verbally abusive or belligerent debt collection calls. 

You can take some tips from them though: 

• Don’t take it personally
• Keep your cool
• Don’t let consumers waste your time – be direct. 
• Suggest a call back later

Tip 5: Keep Good Records

• Friendly payment reminders
• Past due payment notice
• Final Notice
• Direct Customer Contact
• Letter of Demand

If payment is still delayed after that reminder, there should be a past due payment notice sent. Include the amount they still owe and politely request payment at the earliest possible date. 

Still no payment? Time to send a final notice. Your customer is no longer within the terms of payment you both agreed on. This contact attempt will be more firm than the previous ones, it should still include the amount of debt and a request for payment by a specified date. 

If you’re not making headway after the first three collection efforts, then direct customer contact is your next move. A phone call or visiting your client in person may help resolve the issue. At the very least, you may be able to confirm their contact info and address as the same. 

Next up is the letter of demand. This is not to be taken lightly. A letter of demand is sent by certified mail (to confirm that the customer received it) and you’ll keep a copy of the letter for yourself. This one is very direct and firm in its request for immediate payment. 

Tip 6: Centralize Your Debt Collection

Centralizing your debt collection information allows others in your company to view the collection details for each consumer debt. With a collection team backed by a central database system, your debt collectors can:

• Get automated dials
• Notify when an account needs review
• Send alerts when issues arise
• Quickly view and search receivables information
• Increase the number of successful collections

Tip 7: Check Customer Credit

When the nature of your business requires you to extend credit to your customers, you should check their credit references and see if there are any red flags on their credit. It doesn’t have to be a hard inquiry, but you should at least know if they have delinquencies with other businesses. 

This can tip you off before you sign a contract and make your life a lot easier. 

Tip 8: Know When It’s Time to Call In The Professionals

A reputable debt collection agency works on your company’s behalf to resolve delinquent debts. Most collection agencies are paid on a contingency basis. Meaning that they only get a percentage of the debts they collect. 

Before choosing a debt collection agency to work with, it's best to look them up through the Better Business Bureau (BBB) and find out if they’re licensed and bonded within your industry. Once they’re vetted you can start reaping the benefits of working with them:

• They have trained debt collection experts 
• Their collectors can conduct debt collection negotiations
• They maintain good customer service on behalf of your business
• Higher rate of debt collection success
• Unmatched debt collection strategies

Overall, debt collection is a sensitive topic for most consumers who become debtors. As a creditor, it’s your responsibility to collect your debts to keep your business running. 

Remember to keep empathy and solutions at the forefront of your debt collection process for clients who’ve run into hard times. The process of collecting debt isn’t easy, but with the right resources and consistent communication, it becomes more effective. 

*The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.

While learning how to invoice as a freelancer, contractor, or another business owner, you may have heard the terms invoice and receipt used interchangeably. However, the two terms are meant for two separate steps within a business transaction. 

Both have distinct purposes behind when to use them. They even have completely different information on them. In this article, we’ll cover what the differences are and why it’s important for your business. 

What Is an Invoice?

An invoice can be used as proof that goods and services have been provided to a customer. The sales invoice is a request to the customer for payment. So an invoice is provided by a business before payment is made. 

This allows the business owner to claim rights to the payment they expect for the goods or services they provided to the buyer. 

A good invoice has several pieces of information that make it easy to maintain good records for you and the clients receiving your invoice. Compared to a receipt, there’s much more information included on an invoice. 

Any professional invoice should include the following fields: 

• The business name and contact information
• Client name, email, phone number, and address
• Invoice date
• Description of services or goods
• Line items
• Invoice number
• Due date
• Item price
• Any included sales tax or discounts
• Payment methods and options
• The total amount of the sale
• Payment terms (Net 30, 60, or 90)

To make the process of including all this information easier, many small business owners choose to work with invoicing software as opposed to a standard MS word invoice template. 

Invoicing software, like Lendio's software, enables small businesses to send professional quality invoices with customizable invoice templates. We even let you add your own logo and colors. 

Things like company logos, brand colors, and special fonts aren’t required, but they do help businesses present a polished appearance. 

As a best practice, business owners should include clear payment terms on their invoices, along with a statement of any applicable late payment fees. This discourages clients from sending delayed payments and disputes for unpaid invoices. 

If that’s not your style, you might choose to include a discount for early payment. 

What Is A Receipt?

Unlike invoices, an official receipt is only presented to the customer after payment, in the same way you only get a receipt from a store after your purchase.

Customers use receipts for multiple purposes: returning a defective item, finding contact information for the business, and proving they paid for something. 

Small business owners find receipts useful for some of the same reasons. It’s also used to track business expenses, acts as proof of invoice payment, and comes in use for tax purposes. 

Business owners also use sales receipts as proof of purchase when they’re applying for loans from banks or other financial institutions. Receipts have plenty of important information on them that fuels why they’re used for a variety of purposes. A typical receipt will have: 

• Items or services purchased
• The price of the items or services
• Any sales tax or discounts included
• Business contact information
• Purchase date
• Which payment method was used
• Receipt number or invoice number

Big difference from the invoice shown earlier, right? It clearly confirms when payment was made and what it’s for. The last four digits of the payment method are also located in the top right corner. 

Credit card payments are most common, but what about receiving cash? A cash payment would be recorded as cash along with the total amount paid and any change returned to the customer from the transaction. These details make it easy to process refunds if needed. 

The logo and brand colors on a receipt help identify what business the purchase was made from. All in all, much less information is required on a receipt compared to an invoice, but that’s not the only difference between them.

The Difference Between The Two

• Invoices have more information than a receipt. Invoicing involves customer billing information, payment terms, and due dates that receipts don’t have. 
• Invoicing happens before payment is received. It acts as a way to collect payment after completing a purchase order. 
• A receipt is proof that payment was made on an invoice. 
• Receipts are useful for tracking expenses, tax purposes, and making returns.
• Invoices are helpful in accounting and requesting payment. 

For example, an invoice doesn’t prove ownership of an item the way a receipt does. Possessing an invoice for an item has no legal backing for proving you own it. A cash receipt showing that you’re the buyer will help prove ownership. 

Even though an invoice doesn’t prove you’re the buyer, it can be helpful in qualifying for some forms of business financing. When you need to improve your cash flow, the invoices sitting in your accounts receivable can help you qualify for invoice factoring. 

Say you also receive a loan based on the outstanding invoices from your customers. Once customers pay off their invoices, you can repay the loan. 

Receipts can’t help you qualify for business loans, but they can help you get your taxes in order. Receipts are often needed to show that a business has paid the correct amount of money in taxes.  

Lendio’s invoicing software connects with an expense tracking system. Their receipt management app helps you keep all your business receipts in one place. In the event of an IRS audit, having those is extremely helpful in avoiding tax penalties.

Can An Invoice Serve As A Receipt?

For example, a client visits customer service for your company, attempting to make a return. If they show up with an invoice, there’s no proof that they paid for the product they’re returning. 

This makes it much more difficult to process the return since your employee is looking up the purchase based on the invoice number or customer name. Some point-of-sale systems can’t even process a refund without a receipt. 

When using invoices or purchase orders as receipts, it’s difficult to confirm if all invoices are paid. This is especially true for small business owners who do their own bookkeeping. Without receipts to match up with invoices, you might be missing out on a payment that’s behind. 

Why Are Receipts Important In A Business?

Not true. Your receipts have the power to protect you during an audit, confirm that you’ve paid for things, and even help you reconcile your books. It doesn’t stop there. They also help you keep your expenses in check which is a big deal when running a business. 

These are all very important functions that shouldn’t be neglected. Although it’s easy to forget about receipts and chalk them up as extra clutter, they’re important for maintaining good business records.

Overall, invoices and receipts serve completely different functions. While they’re referred to in the same context, it’s important to have both in your arsenal. Invoices act as a way to request payment while receipts prove that you’ve paid.

When you go into business you’re bound to have some customers or even other businesses fail to pay their invoices on time. It might be a matter of forgetfulness or financial hardship preventing them from paying. 

Either way, it can severely impact your daily operations, cash flow, and take up valuable time chasing down late payments. In this article, we will explore the different methods of debt collection for small businesses and a few alternatives to hiring a collections agency.

How Do Small Businesses Collect Debt?

Small businesses collect debt in many ways. It can range from a friendly reminder to hiring legal representation, plus a few things in between. 

Overall, the way debt is collected is based on how long the overdue debt has been there and what type of customer you’re dealing with. Small business debt collection practices include: 

• Reminder emails/ letters
• Phone calls
• Demand letters
• Negotiating bad debts
• Hiring a debt collection agency
• Filing with small claims court
• Filing a lawsuit

Does this client usually pay late or do they try to avoid paying altogether? Perhaps a firm reminder or demand letter will work best. If that doesn’t do the trick, you may have to send their debt to a debt collection agency. 

For a customer who’s typically on time, you’ll need a lighter touch. They may have run into financial issues that affected their ability to keep up with payments. A friendly reminder or phone call is the best option here. 

When Should One Hire a Debt Collection Agency?

As a general practice, most business owners send business debt to collection agencies once it reaches 90 to 120 days past due. 

However, the time frame isn’t the only factor to pay attention to. When you’re looking to collect on a business debt, you should look out for any one of these situations: 

• A customer making unfounded claims about the product or services they received from your business. 
• A debtor completely denies that they owe any outstanding debt without proof of payment. 
• A customer who agreed to a payment plan for their overdue accounts but hasn’t made any of their new payments. 
• New clients with no payment history who don’t respond to your initial attempt at debt collection. 
• Small businesses or individuals who have a history of defaulting on debts. 

You’ll want to keep a copy of each demand letter sent. Each one should be professional, firm, and direct about any legal action or reporting to a debt collection agency.

How Collection Agencies Work

On average, debt collection agencies charge 20% to 50% of the debt they recover. But since they only get paid when they successfully collect a debt, it incentivizes them to use legal tactics at their disposal to get your money. Plus, getting something back is better than nothing.

When you hire a debt collection service, they’ll need to get all the information available about each debtor you have an unpaid invoice with. This includes information like: 

• Customer name, any nicknames, and maiden names
• Addresses, phone numbers, and emails
• Purchase details, transaction dates, amounts, and any contracts 
• What you’ve done in your debt collection process so far 

Working with a good debt collection agency can also protect you from getting into any trouble with consumer debt collection laws. 

Reputable collection specialists abide by the Fair Debt Collection Practices Act (FDCPA), which prohibits small business owners, debt collectors, and their employees from using harassment or unfair tactics when collecting on a past due account. 

These laws don’t apply to B2B debt collections. If you’re a small business owner who needs B2B collections, there are specialized commercial debt collection agencies. 

Steps To Take Before Hiring A Debt Collection Agency

Earlier we mentioned sending friendly reminder emails. This works for customers who are genuinely forgetful, unorganized with their payments or have run into financial difficulty. A polite reminder email or letter brings your unpaid invoice to the forefront without burning any bridges. 

If reminders, phone calls, and letters aren’t working, then it’s time to change tactics. You might offer them the chance to repay their debt on a payment plan or negotiate the debt down to something they can handle. 

If they agree to a payment plan, the remaining payments must be made on time. The alternative is to send the account to collections.  

How to Hire a Good Agency

• They work with the types of customers you work with; commercial collections or consumer collections. 
• They’re familiar with your industry and the rules that govern it. 
• They’re a good representation of your company. Although you want to recover your small business debt, you don’t want to ruin your reputation in the process. The debt collector you choose should be professional and courteous with your customers. 
• Make sure they’re licensed, bonded, and insured. 
• Consider the reviews they’ve received through the Better Business Bureau.

How Much Does it Cost to Hire an Agency?

Most other business debt collectors charge a contingency fee of 25% to 50% depending on the age of the accounts and how many there are. You typically won’t find pricing on their website though. Many times they’ll have you speak to an agent to determine the cost. 

As with any other service, you’ll want to focus on the quality behind it, not just the price. Going with the cheapest option could mean sacrificing customer service or return rates.

Alternatives to Hiring a Debt Collection Agency

Collecting the Debt Yourself

Lendio’s free accounting software for small business is a great option for saving time on sending those email reminders. Sign up for free and see how they can help you improve your accounts receivable.

Selling the Debt

You’ll likely be required to sell at a large discount, but something is better than nothing. 

Going to Small Claims Court

With substantial proof that you provided goods or services and didn’t receive payment, the judge might grant a judgment in your favor,  requiring the client to pay you. This can come with plenty of court fees though. 

Hiring an Attorney

All in all, understanding how to collect debts is important for small business owners. It makes a difference in your ability to do business. While there are some actions you can take on your own, sometimes it helps to call in the professionals. 

Hiring a collection agency, selling your debt, or going to court are heavy hitters in getting your outstanding accounts paid.

*The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.

As a small business owner, it’s easy to get caught up in day-to-day operations and neglect things like revenue forecasting. That can cause problems though, especially as your overhead goes up and you need to scale at a certain rate to stay profitable.

Fortunately, once you’ve made a few forecasts and established your systems, regularly projecting your company’s revenue becomes a lot more achievable. Here’s what you need to know about the steps involved to get started.

What is Revenue Forecasting?

Revenue forecasting refers to using historical data and educated assumptions about your business, industry, and the economy to estimate your company’s future gross sales.

In other words, it involves the combination of quantitative and qualitative information to create models of how much your company is likely to earn. 

You can then use the models to plan by tweaking inputs that reflect decisions, outcomes, and external variables.

Revenue is a high-level metric, but it has significant implications, such as:

• You need it to set realistic business budgets
• It’s largely responsible for your company’s general profitability
• It can quickly express the scale of your business or market share to a third party
• The way it trends over time represents your company’s growth or lack thereof

Because revenue impacts many aspects of your business, forecasting it is highly beneficial. Your projections can help you make more intelligent business decisions, win over prospective investors, and set appropriate long-term goals.

For example, say you’re debating whether or not it makes sense to have your sales manager expand the sales team in the coming months to keep up with an anticipated spike in demand.

With a sophisticated revenue forecasting model, you could project the impact hiring salespeople would have on your company’s earning power. Comparing it to the expense you’d incur to hire them would tell you whether they would be healthy for your cash flow.

How to Forecast Revenue

You’ll need to do a lot of preparation before you can use any revenue forecasting methods. Let’s look at the most important steps to take.

Build Accurate Financial Statements

Before you can start trying to predict the future, you need to have an accurate picture of your past. In financial management, that means building a reliable set of financial statements, including a balance sheet and an income statement.

Almost every sales forecasting method relies on historical company data to some degree. Without concrete numbers to rely on, you’re making guesses with little basis in reality.

If your company is too young to have sufficient data, it'll be harder to create an accurate forecast. You may be able to use numbers from similar companies and tweak them, but your projected revenue will be inherently less reliable.

Document the Context Behind the Numbers

Your company’s historical data tells an important story, but it’s ultimately an incomplete one. You'll also need some context to supplement your quantitative forecasting.

Take the time to document your business plans, the lessons you learn from mistakes, and the reasons behind your decisions. They can help you decipher your revenue numbers and factor any improvements you make into your future sales projections.

It’s also beneficial to perform regular variance analysis and investigate the differences between your expected and actual numbers. Once again, the things you learn can help refine your future forecasting.

For example, say it’s the end of 2025, and you want to forecast your revenue for 2026. Your business is seasonal, so you use forecasting methods that base each month’s revenue on numbers from the same month in the previous year. 

When you estimate your March 2026 revenue, you see that you had a slight drop off in sales last March. Without any context, you might assume there’s some seasonal reason for this, which would skew your projections downward.

However, upon checking your notes, you see it was because your sales leader and best sales rep left the company that month. Since that isn’t a recurring revenue issue, you can adjust your forecast to reflect better March numbers than you saw last year.

Pick a Spreadsheet or Software

Once you have the information you need to start forecasting your revenues, you have to decide whether you want to use a Microsoft Excel spreadsheet or financial forecasting software to do so.

Spreadsheets are the traditional choice and give you complete control over the forecasting process. They let you build your forecasts from the ground up, and you may develop greater insight into all of the factors affecting your sales.

However, building your revenue forecasts from scratch takes significant time and effort, and your models are much more susceptible to human error. If you transpose a number, you can throw off all your numbers and spend hours searching for the problem.

Meanwhile, software streamlines the forecasting process by linking directly to your company’s data. It may also help you manipulate the data more intuitively, but you always give up some degree of control.

Choose Your Forecasting Methods

With all your forecasting information and tools prepped, you have what you need to start the revenue forecasting process. However, you’ll have to choose between many different approaches, and each has its own strengths and weaknesses.

When selecting your favorites, consider which variables they depend on and your current revenue growth pattern. For example, some methods are better for seasonal businesses, while others make more sense for a company scaling at a steady rate.

3 Revenue Forecasting Methods

Here are some popular, easy-to-understand revenue forecasting methods. As you review them, keep in mind that you may need more advanced analytics to get meaningful insights for your business in practice.

For example, you may have to use multiple forecasting methods in conjunction, project each revenue stream individually, or make modifications for external economic factors.

1. Straight-Line

The straight-line method is the most straightforward way to forecast, though that’s not related to the name. Its simplicity can make it one of the less accurate approaches, but it also lets you estimate your revenues with little time and effort.

The straight-line method is best when:

• A rough estimate of your projected revenues will suffice
• You know you won’t take the time to run a more thorough revenue forecast
• Your business has had a steady growth rate for years and you expect it to continue

To forecast future revenue using the straight-line method, just multiply the latest year’s revenues by your company’s historical growth rate.

For example, imagine that the 2022 calendar year is coming to an end, and you want to project your revenues over the next year. In 2021 and 2022, your gross revenues were $500,000 and $525,000, respectively. That equals a 5% growth rate year over year.

To get your 2023 numbers, you’d multiply $525,000 by 1.05, which equals $551,250. If you wanted to forecast further into the future, you’d continue to multiply each year’s annual revenue by 1.05.

2. Weighted Moving Average

The weighted moving average method of forecasting revenue is similar to the straight-line method, but it’s more granular. As a result, your forecast accuracy will often be better, especially over short time horizons.

It makes the most sense when:

• Your business isn’t seasonal
• You have less historical sales data available
• You’re not trying to forecast very far into the future

To forecast revenues using the weighted moving average method, you take a weighted average of trailing data points to predict the next in the sequence. Typically, you’ll place greater weight on more recent data points.

For example, say you have the following gross revenue amounts over the previous four months:

• January: $6,400
• February: $6,800
• March: $7,250
• April: $7,000

To create a revenue projection for May, you decide to use the weighted moving average method. You give 50% weight to April, 25% to March, 15% to February, and 10% to January.

Your formula would look like the following: 

($6,400 x 10%) + ($6,800 x 15%) + ($7,250 x 25%) + ($7,000 x 50%) = $6,972.50

To create a sales forecast for your June revenues using the weighted moving average method, you’d repeat the process by using the months of February through May.

3. Simple Linear Regression

Straight-line and weighted moving average methods involve the manipulation of revenue data alone. Linear regression takes a different approach, instead using the relationship between revenues and an independent variable to make predictions.

As a result, linear regression makes the most sense for your business when you have something you believe is a clear driver of revenues.

For example, say you’re unsure whether it’s worth paying for direct mail marketing. You decide to use linear regression to forecast your sales and get the answer.

You have the following data from the previous year:

Last Year’s Data

Using the average correlation between the two variables, you can estimate that mailing 83.25 letters to client leads generates an average revenue of $7,545. It costs you $500 to send 83.25 letters to client leads early in your sales pipeline.

Say you spend the next year using email marketing instead, then repeat the linear regression with the new data.

If you find that investing $500 in email marketing each month generates higher sales activity and more than $7,545 in revenue per month, you’d know it’s the better marketing tool.

The best method for revenue forecasting is the one that applies most to your business and situation. If one of the methods above seems relevant, just get started! You can always correct course later. 

One downside to being a W-2 employee is that you don’t have access to many tax write-offs. However, if you’re a 1099 contractor, the Internal Revenue Service (IRS) lets you deduct all ordinary and necessary business expenses on your tax return.

That language sounds a bit stiff, but it basically means that you can deduct the expenses someone in your line of business would reasonably need to pay. If you’re unsure what those might be, here are some great ideas to get you started.

Top 1099 tax write-offs

1. Advertising expenses

2. Auto expenses

3. Business insurance premiums

4. Contributions to retirement plans

5. Health insurance premiums

6. Home office expenses

7. Interest on debts

8. Meals

9. Phone and internet bills

10. Qualified business income deduction

11. Self employment taxes

1. Advertising expenses

As a small business owner, you’ll need to find a way to generate interest in your product or services. Unless you have a vast network of pre-existing clients or customers, that means you’ll probably have to advertise your company somehow.

Fortunately, you can deduct those expenses, even if they take a variety of different forms. For example, you might write off the cost of your ads on social media platforms, direct mail campaigns, and business website.

2. Auto expenses

If you drive your car as part of your business, you might be able to deduct some of the expenses you incur for the vehicle. That typically includes things like gas, maintenance, registration fees, and auto insurance premiums.

That said, you can only deduct the portion of your auto expenses that corresponds with your business use. For example, if you have a car you use for business trips 25% of the time and personal trips 75% of the time, you can only deduct 25% of your car expenses.

Alternatively, you can use a standard mileage rate issued by the IRS to calculate your deduction, which involves multiplying your miles driven for business purposes by $0.56 in 2021 and $0.585 in 2022.

If you start with the standard method, you can switch to the actual expense method whenever you like. However, if you decide to use the actual expense method, you have to stand by that choice until you retire the car.

Note that driving to your primary place of work doesn’t count as business use of your car. However, if you typically work out of a home office and take a trip to a client site, that trip would count as business use.

3. Business insurance premiums

As a 1099 contractor, it’s often a good idea to purchase business insurance, though the type can vary depending on your trade. Fortunately, your premiums are tax-deductible, as long as it makes sense that you would need the policy.

For example, you’ll probably need general liability insurance if you work in construction. It helps cover the costs of a lawsuit if you ever accidentally damage your client's property and is often required by state regulation.

4. Contributions to retirement plans

As a 1099 contractor, you don’t benefit from employer-sponsored retirement plans, but that doesn’t mean you don’t have access to any retirement accounts. In fact, you have some great options that employees don’t.

For example, the Solo 401(k) is a fantastic retirement account for independent contractors with no employees. You can contribute the following amounts per year:

• Employee portion: $19,500 for 2021 and $20,500 in 2022. Those over 50 years old can also make a $6,500 catch-up contribution.
• Employer portion: 25% of your net self-employment income up to $38,500 in 2021 and $40,500 in 2022.

Contributing to retirement plans reduces your gross income for the current tax year directly. In addition, the dividends and capital gains you earn within the accounts are tax-deferred, which means you don’t pay tax on them until you withdraw your funds.

Because of the multiple tax advantages of retirement plans, contributing to them is one of the best deductions available to 1099 contractors. In any case, the funds will come back to you someday, and you can’t have too much money in retirement.

5. Health insurance premiums

In 2021, the average health insurance premium for single coverage was $7,739, which works out to about $644 per month. That’s a massive expense, and if you’re a 1099 contractor, you have to pay for it all without the help of an employer.

Fortunately, you can typically deduct the cost of your health insurance premiums, along with whatever you pay for dental insurance. If you have a spouse or a dependent, you can write off their premiums too.

However, there is one significant caveat. To take a business deduction for health insurance premiums, you can’t be eligible for coverage through a spouse’s employer.

6. Home office expenses 

If you run your business out of an office in your personal residence, you may be able to write off some of your housing expenses. That typically includes your rent, mortgage interest, property taxes, utilities, and maintenance.

To be eligible for the deduction, your home office needs to meet two criteria:

• Primary place of work: In simple terms, you have to do most of your business from your home office. If you spend 51% or more of your time working in another location, you don’t meet this requirement.
• Exclusive use: This rule stops you from taking the deduction if your home office doubles as personal space. For example, you can’t claim that your kitchen counter is a home office.

If you pass both tests, you can write off the housing expenses that correspond with the business use of your home. For example, if your home office is 100 square feet and you live in a 1,000 square feet home, you can write off 10% of your actual costs.

Alternatively, if you’d prefer not to track all your home expenses, you can use the simplified method, which involves multiplying the square footage of your home office by $5.

It’s generally best to calculate your deduction using both options to determine which will save you the most money.

7. Interest on debts

As a small business owner, you’ll likely take out a credit account at some point. Fortunately, you can write off the interest that accrues on all of your business debts, whether they’re installment or revolving accounts.

For example, say you’re a freelance photographer and use a credit card to pay for your day-to-day business expenses. If you ever carry a balance over from one month to the next, you can write off whatever interest you accrue as a result.

That's another reason why it’s best to keep your personal and business transactions on separate accounts. If you use the same credit account to pay for both, it can be hard to determine what portion of your interest is tax-deductible.

8. Meals

It might not seem like a meal could be an ordinary or necessary business expense, but it can be in certain situations. However, the rules for deducting them are pretty specific, and the IRS pays close attention since people may be tempted to cheat here.

Generally speaking, a meal must involve the discussion of business matters with a business contact to qualify for the deduction. For example, that might include:

• Lunch with an existing client where you discuss ongoing issues
• Dinner with a prospective client during which you attempt to close a deal
• A meal with a vendor where you negotiate payment terms

If a meal is deductible, you have two options for calculating the size of the write-off. You can deduct 50% of the actual cost of the meal, as long as it’s not an extravagant amount, or you can use a flat allowance set by the General Services Administration.

Notably, in the 2021 and 2022 tax years, the IRS has temporarily lifted the 50% limit for meals that come from restaurants to help the industry recover from the effects of COVID-19.

9. Phone and internet bills

As a self-employed worker, you can take a tax deduction for whatever percentage of your phone and internet usage is for business purposes.

If you rent an office space with its own internet connection and pay for a second phone line just for your business communications, you can deduct the entire cost of both services.

However, if you have a home office or use your personal cell phone number for work, you can only deduct the business portion of the related expenses. Unfortunately, it can be particularly difficult to calculate that split for your phone and internet costs.

10. Qualified business income deduction

The qualified business income (QBI) deduction can significantly reduce your tax bill as a 1099 contractor. In simple terms, it lets you write off 20% of your business earnings, though that doesn’t include things like capital gains or interest on company investments.

To be eligible for the write-off, you must have pass-through income, which primarily excludes C-Corporations. In addition, there’s a maximum income restriction, and if you exceed it, the size of your deduction depends on the type of business you run.

As you can probably tell from that description, calculating the QBI deduction can be pretty laborious. There are a lot of nuanced rules to navigate, and it’s not a good idea to try and tackle them without the help of a tax expert.

For more details, you can read the IRS publication Instructions for IRS Form 8995.

11. Self-employment taxes

The self-employment tax deduction is one of the best ways to reduce independent contractor taxes because your eligibility doesn’t have anything to do with your line of work. As long as you’re self-employed, you can probably claim it to some degree.

The self-employment tax is a 15.3% tax comprised of two parts: a 12.4% Social Security tax and a 2.9% Medicare tax. It applies to 92.35% of your net earnings. Employees get to share that cost with their employers, with each party paying 7.65%.

However, self-employed taxpayers don’t have that luxury. The self-employment tax deduction lets you write off the employer portion for income tax purposes, easing the additional tax burden.

For example, say you report $50,000 of net earnings as a sole proprietor. You’d have to pay $7,065 in self-employment taxes. However, you could reduce your taxable income for state and federal income tax purposes by half that, which is $3,825.

Did you know that your personal credit score is also a factor of your business credit score calculation? That means improving the former could help improve the latter, too.

Less-than-perfect personal credit doesn’t have to be a scarlet letter you wear on your chest for the rest of your life. Personal credit scores can be repaired. You can start with the 5 strategies below.

#1. Monitor Your Credit Report Closely

According to the Fair Credit Reporting Act, your credit agency is required to show you your credit report at least once a year at no charge. Take full advantage of that right.

Why?

You may have credit dings you don’t know about or that don’t belong on your credit report. You have the right to challenge them and request they be removed. How do you do this? Start by going through your credit report each year -- and be thorough. Even a few inconsistencies can add up quickly and could be the difference between a red flag and a green light for funding.

#2. Target a 10% Balance

How much can you put on your credit card? If you're trying to improve your credit, experts advise keeping that balance at 10%. So if your card limit is $5,000, a balance of $500 or less would maximize your credit score. 

Why?

Credit cards account for 30% of your personal credit score. Without an active credit card, you’re missing a gigantic portion of your score. 

At 0−7% balance to limit ratio, the credit agencies will see a lack of recent revolving credit. This could make them think you don’t have experience with credit cards. To them, it would be like hiring someone with no employment history for a job.

Anything above 10% will chip away at that 30% of the overall credit score affected by credit cards:

• A 10−30% balance takes away up to 10%
• A 30–50% balance takes away 10−25%
• A 50−90% balance takes away 25–90%

Of note, credit card records update monthly, so you can swing your credit score substantially by paying maxed out credit cards down to 10% utilization in a month.

But…

If you're thinking about applying for a new card and maintaining a low balance, proceed with caution: you won't want to apply for a lot of new credit at the same time. The reason for this has to do with “credit inquiries” or "credit checks" (also called a "credit pull"), which is the term used when a lender, broker, partner, or vendor checks your credit score. 

A “hard inquiry” is what you want to avoid when trying to rebuild credit because each one negatively impacts your credit score. The less credit you apply for, the fewer hard inquiries your credit score will show. 

BTW, if you have store credit cards, consider the following: using a store credit card at least once every 6 months allows it stays active. If the issuer deactivates the card, a credit check may be needed to reactivate it, which could constitute a hard inquiry, too, although the impact to your credit score may not be as great. Also, hard inquiries drop off your credit report after two years.   

#3. Smartly Use the Credit You Have

If you have an unused credit account like a personal line of credit, you may use that to boost your credit score, too.

Why?

Your credit history is an average of all your open and active credit accounts. A good credit history with credit—any credit—can positively impact your score. If you have a line of credit that you've not used, consider paying expected expenses with it and then paying back the line of credit with the money you already put aside in your checking account to pay those bills.

Also...

Did you know that opening a new store account, like a Macy's or Kohl's card, to save 10% could drag down your score? If you have a lot of old credit cards and a couple new credit cards, consider closing the new cards to boost your length of credit history. Fifteen percent of your score is based off the average length of all your open and active accounts. When you introduce new accounts it adds 0-year accounts to the profile, which can also cause a score to drop.

# 4. Keep Debt Levels Low

#5. Piggyback Off Someone Else’s Good Credit

Have someone you know add you as an authorized user of their credit card. You’d have to ask the person to do this, and if they agree, they would add you, receive the credit card in your name linked to their account, and pass it off to you.

Why?

Because you can gain a ton of credit history. 

Credit history is important because it’s a huge contributor to your credit score. As an authorized user of someone else’s account, their good credit is factored into calculating your credit score. Think of it as an endorsement.

But…

It’s only a good endorsement if the person giving it has good credit, so choose the person wisely. Who should you consider: someone who keeps a low balance and pays their bills on time. Spouses and family members may be the most open to this idea.

Also…

Do everything right! Just as you will benefit from the person’s good habits, that person can take a credit hit if you abuse the authorization you’ve been given, so treat it with respect (remember, they're still on the line for all charges). And don’t get yourself authorized on too many accounts. Credit agencies will flag that as you artificially raising your score.

#6. Pay Bills on Time 

Paying your bills on time is by far the best thing you can do to rebuild less-than-stellar credit. 

Why?

It shows that you can handle debt and be trusted with someone else’s money.

But…

Credit agencies are notified when you have a bill outstanding for more than 30 days. They call it a delinquency, and it will stay on your credit report for 7 years, depressing your score the whole time.

For example: If you had a 30-day late payment reported in June 2022 and you cleared the account in full by July, it would stay in your report until June 2029.

The bad news is that you won’t be able to get back to perfect until then, even if you do everything right.

#7 Watch out for Risk Indicators

Credit card issuers like customers with consistent spending and paying behaviors. This is why you must be careful about risk indicators like skipping payments or paying less on your balance than you typically do. If you’re making large purchases, or spending on services like a divorce attorney, or a real estate selling agent, these could also be indications of upcoming financial trouble. Before deviating from your normal spending patterns, think about how they’ll look on your credit report.

Disclaimer: The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.