Successfully Convert Credit Sales into Cash

Beatrice Njambi
Tax Manager

Beatrice is a tax professional with over six years experience. She joined the MGK team in June last year and is in-charge of tax advisory and compliance services. She is a CPA -K and a Bachelor of Commerce graduate from Strathmore University.

Tax is a vital component of business and needs to be well managed. Our Tax department assists in all aspects of tax planning and compliance including;

1. Tax planning and advisory services.
2. Preparation and filing of Income Tax and VAT returns.
3. Executive and Employee returns.
4. Conducting Tax health checks (tax compliance reviews).
5. Managing KRA tax audits.

Contact us for more information about this service.

Welcome to the second edition of our Newsletter. In this issue we delve further into cash flow management by giving you tips on how to convert credit sales into cash. On tax matters, we give you an update on the VAT refund and provide a highlight of changes to the Income tax Act regarding Business Particulars.

Successfully Convert Credit Sales into Cash

Many businesses sell on credit to their customers. The business needs to be aware of and establish mechanisms for managing the arising credit risk. Credit risk is the risk that the customer defaults and fails to make payment. Below are some useful, practical considerations which can help you successfully collect on all credit sales and hence improve business cash flow while avoiding loss.

1. Know that you are in the banking business when you make sales on credit. How easy is it for you to obtain a credit facility from your bank? Just like banks, have a proper credit application, vetting and approval process to ensure credit is extended to credit-worthy customers only. Remember, it is better not to make the sale than to sell and fail to collect.
2. Credit period should be agreed upon with clear consequences for exceeding; such as stop supplies and charge interest on outstanding amount.
3. To have a positive cash flow, you need to collect at a faster rate than the rate at which you pay. Ensure therefore that the credit period extended to customers is shorter than the credit period extended to you by your suppliers.
4. Have in place a system of ensuring that all sales are invoiced promptly. Do not be the source of any delays in receiving payment.
5. Understand your customers’ payment cycles and align your billing to it. If a customer, for example, pays invoices received in a particular month at the end of the following month, ensure all invoices are with the customer by the end of the month. Delay by a day could mean being paid in 60 days instead of in 30 days.

For Business Advisory Services, contact Daniel Muhia on
dmuhia@mgkconsult.co.ke

KRA to Settle 19.2 Billion VAT Refund by end of March 2015

The Kenya Revenue Authority is to begin clearance of Value Added Tax (VAT) refund amounting to Sh.19.2 billion. The exercise will take place in two phases and will be concluded by 30^th March 2015. The government said Sh.11.2 billion of the claims has been processed and verified and Sh.9.3 billion is payable in the first installment after debt reconciliation. The second installment of Sh.8 billion will be paid after verification and debt reconciliation are finalized.

According to the government, the three categories of claimants identified are:

1. Claimants with no debt where the payable amount is Kshs. 2.3 billion. This amount is payable immediately.
2. Claimants with debts but have a positive balance. The amount payable to this category is Kshs. 4.7 billion but have a debt of Kshs. 2.0 billion. Net payable is Kshs. 2.7 billion. The debts will be reconciled by KRA and any payable amount will be paid immediately.
3. Claimants whose the debt is more than what is payable to them. The amount payable to this category is Kshs. 2.7 billion but the debts amount to Kshs. 11.0 billion. The debts will be reconciled with a view to having the claimants settle their debts with KRA.

Changes in Business Particulars

The Income Tax Act has been amended by inserting section 54B that requires every person in business to notify the Commissioner within 30 days of any of the following changes;

- Place of business, trading name or contact address,
- Shareholders owning more 10% or more of the total share capital in the case of an incorporated person;
- Beneficial owner of shareholding in the case of a nominee ownership;

- Identity & addresses of settlers & beneficiaries of trust;

- Identity &addresses of all partners in partnerships; and
- All relevant information regarding the cessation, sale of business, liquidation or details of new ownership

Effective date - 1st January 2015

For Tax Advisory Services, contact Beatrice Njambi on

bnjambi@mgkconsult.co.ke