Automated reminder emails save time and can improve cash flow.

Of all the tasks you have to complete to keep your company’s finances going, trying to collect on unpaid invoices is probably one of the most unpleasant. No one likes contacting a customer and requesting that an outstanding bill be settled. But you know that if you don’t do this when it’s needed, your own cash flow will suffer.

So, you may put it off until you absolutely have to do it, which leads to an uneven collections schedule for your business.  Your customers never know when they might hear from you about a debt.

Setting up automated email reminders in QuickBooks Online solves that problem. It can also ease at least some of your anxiety about overdue payments. And it saves time – the time you spend dreading your impending collections efforts and the time you spend following through. Here’s how you can get started with them.

A Simple Process

The mechanics of setting up automated email reminders are not complicated. The hardest parts are settling on the timing of reminders and setting the right tone in your emails.

Start by clicking the gear icon in the upper right. Click Account and settings under Your Company. Scroll down to the Sales tab and click it, then scroll down to the Reminders section. If Automate invoice reminders is set to Off, click it, then click the toggle bottom to turn it to On. QuickBooks Online allows you to set up three different reminders for different time periods. Click the down arrow on the Reminder 1 line.

QuickBooks Online allows you to customize your invoice reminders in a number of ways.

Three Different Reminders

Each reminder is labeled with QuickBooks Online’s suggested timing (before due date, on due date, and after due date). You do not have to follow this approach. You can specify the number of days you want the email reminder to go out before, on, or after the due date for the first and third reminders. Reminder 2 only allows you to have the email sent on or after the due date. So if you want, you can have all of the reminders arrive after the due date, which is more typical.

You can select an email greeting (Dear, etc.) and specify whether the recipient should be addressed by Full Name, First, Company Name, etc. You can also modify the Subject line to say whatever you’d like it to.

Preparing Your Email Messages

You’ll notice that the Invoice No. and Company Name appear in brackets ([]). If you’ve ever done a mail merge, you’ll understand this concept. If not, you should know that data in brackets gets replaced by real data from your QuickBooks Online file. So if  one of the companies you’re writing to is Copy City, that name will replace the boilerplate text in brackets. And that customer’s real invoice number will appear in that field.

You’ll of course want to write separate messages for each reminder depending on when it will be going out. For example, your language will be a little stronger if the payment is 30 or more days late rather than seven days late. Give your customers the benefit of the doubt – at least on your first reminder. They may have just missed the invoice or didn’t notice the invoice date.

When you’re done setting up your reminders, be sure to click Save. Automatic email reminders only apply to new invoices. You can modify or turn off your reminders anytime. And if you want to send an individual reminder to a customer about an invoice, hover your mouse over Sales in the toolbar and click Invoices. Click the down arrow in the Action column on the appropriate line and select Send reminder.

Do You Need Your Own Reminders?

QuickBooks Online displays a list of Tasks that need to be done on its opening (Home) page. It would be nice if you could add your own reminders to this list, like invoices that need to go out and bills that need to be paid. But the site provides other ways for you to get information like this quickly. For example, you can scroll down on the Home page to the Income box to learn about open and overdue invoices.

You can also hover your mouse over Sales in the toolbar and click All sales. You can see how much revenue is tied up in Estimates and Unbilled Income. Click the colored bars to see a list of transactions of each type. You can also see a list of Overdue Invoices. Look in the Action column to see what your options are. And there are always reports like Accounts receivable aging detail, Open Invoices, Unbilled charges, and Unbilled time.

If you’re making $400 or more on your hobby, it’s time to start declaring it on your income taxes.

We take on hobbies because we enjoy them. But at some point, we sometimes get enough people wanting the woven towels or the birdhouses or the Christmas ornaments we make that it’s time to start charging for them. Supplies cost money, and your time is certainly worth something.

A lot of people get started that way. Before you know it, they’ve set up a shop on Etsy and started exhibiting at craft shows. At what point does this become a business, they may ask themselves.

If you’re bringing in $400 or more per year on your side gig, you should know that there are two good reasons why you should be reporting your business on your Form 1040:
• You’ll be able to deduct at least some of your expenses, and,
• The IRS mandates it.

8 Questions

When your hobby becomes a small business, you’ll have to complete and file a Schedule C with your 1040.

If your personal enterprise has turned a profit in three of the last five years, it’s quite likely that your creative endeavors have become something that requires a Schedule C along with your 1040. The IRS suggests that you ask yourself eight questions to help determine whether it considers you a business and not a hobby. They go something like this:

1.   Does the time and effort you put into the activity show you intend to make a profit?

2.   Does the activity make a profit in some years, and if so, how much profit does it make?

3.   Can you expect to make a future profit from the appreciation of the assets used in the activity?

4.   Do you depend on income from the activity for (at least part of) your livelihood?

5.   Are any losses due to circumstances beyond your control or are the losses normal for the startup phase of your type of business?

6.   Do you change your methods of operation to improve profitability?

7.   Do you carry out the activity in a businesslike manner and keep complete and accurate books and records?

8.   Do you and any advisors you might work with have the knowledge needed to carry out the activity as a successful business?

How Will You Report Your Income?

Depending on how much money you make and where/how you sell your products, you may receive a 1099 of some sort. If you accept credit cards, it will most likely be the 1099-K: Payment Card and Third-Party Network Transactions. If you take checks and cash, you’ll have to add it all up yourself. Keep any documentation you have if this is the case. You’ll report this on your Schedule C.

How Will You Know If An Expense Is Deductible?

Some business expenses are obvious. If you’re making birdhouses, for example, everything you buy to assemble them should be considered part of your Cost of Goods Sold. If you’re buying products wholesale and reselling them, that should be deductible, too.

But there’s a lot of gray area. The IRS says that legitimate business expenses are those that are “ordinary and necessary.” An ordinary expense is one that is typical and widely accepted in your industry. A necessary expense, on the other hand, is one that is useful and appropriate for your business operations. An expense doesn’t need to be essential to qualify as necessary.

Some small business owners really stretch the interpretation of “ordinary and necessary.” There’s a famous case where a company that had a warehouse tried to deduct the cost of cat food. The contents of the warehouse were attracting rodents and snakes, and they wanted to feed stray cats who would keep the population of unwanted visitors down. The IRS accepted it as a legitimate business expense.

Our point here is not that you should try to find some outlandish business expenses to deduct. But we want you to really think about what it costs you to do business. If you’re ever audited, you’ll have to make a case to the IRS about why you claimed a particular purchase as necessary for your business. Keep meticulous records of your purchases.

On to a New Year

Keep these things in mind as we move into a new year – and tax preparation season. You may want to consider reclassifying your hobby as a business and filing a Schedule C with your 1040. We’re not IRS auditors, of course, so we can’t tell you whether a certain purchase will be considered a deductible business expense. But we can help you deal with the tax-related issues you’ll face should you decide it’s time for you to start claiming income and expenses for your pastime-turned-business.