Different Fees That Affect Small Business Cash Flow
Cash flow problems can strike businesses at any time and sideline operations.
Although there are the obvious financial culprits that chip away at your company’s bottom line, one crucial cash killer might be less evident at the outset is a little thing called fees. These pesky, but necessary, evils aren’t going anywhere anytime soon. And, despite being small, they can add up big time over time.
Let’s use the aquatic world as a comparison. Think of fees like piranhas. They can strip a target clean before it even knows what’s happening.
In this series, we’ve been examining various financial terms and situations that could affect your business. We are using the examples of Buddy’s Bakery and Callie’s Cupcakes, two rival businesses in the same town. Buddy and Callie need to watch out for some of the following fees. It’ll help keep more money in their pockets and their cash flow; flowing.
This is one fee that might actually work in your favor and soften the blow. Simple interest is calculated by multiplying the principal amount borrowed by the rate of interest per year (in decimal) by the time periods involved or:
To understand this formula in practice, let’s take a look at Callie’s Cupcakes. Callie has a loan with a bank with the following details per the formula:
P: $10,000 R: 3.875% (or 0.03875) T: 5 years
If we employ this formula into the scenario, we learn that Callie will pay a total interest amount of $1,937.50. But there is good news for Callie in all of this. If the interest fees Callie pays out are related to business expenses, they can be tax deductible.
Transaction fee: believe it or not, a bank can and might charge you for every. single. transaction. you make.
Minimum balance fee: This is assessed and charged on any account with a low balance.
ATM fee: When a transaction is not conducted at the bank where the account is held or a partner bank, sometimes a fee is charged.
Maintenance fee: Some banks charge you money to keep your money via a maintenance fee imposed on certain accounts charged monthly or annually.
In order to thwart these fees, (or at least have an idea of what fees will be assessed to your account) ask upfront what the account’s terms and conditions are. One thing that could bring down any fee sticker shock is to ask your bank if certain fees can be waived. For example, it might be possible to get the bank to agree to waive the minimum balance fee if the account carries a lower balance.
Late payment penalties
They are imposed when a borrower does not pay a bill or return rented or borrowed items by their agreed upon due date. The fees are typically calculated per day or per item. Although they are spelled out at the time an agreement is entered into, it’s still a good idea to stay mindful of the following in order to avoid the fees altogether:
- Read the fine print of your agreement
- Identify what services and goods can charge you a late fee
- Know the amount of a fee that can be imposed
- Be aware of the deadline to pay the bill or return the items in question
Late payment penalties turn up everywhere. They are found in obvious examples like late credit card payments and equipment rental payments. But they also have a presence in less obvious circumstances, such as mobile phones.
Check this out to find out more about how Betty and Callie can learn about the differences between varying types of interest and make their financial obligations work in their favor.