One of the most valuable things we offer the FreshBooks community is our unique report card service. Your report card shows how you stack up against comparable businesses in your industry in a variety of metrics. You can see where you’re outperforming your FreshBooks brethren (and sistren!), and where you might be able to “up your game,” as the kids say.
Unlike lesser traditions like Talk Like a Pirate Day or Festivus, Report Card Day comes four times a year! We just recently sent out third quarter report cards for 2007, and as we’ve done in the past, we interviewed several top performers to find out the secrets to their success.
This quarter, our focus is on those who collected on their invoices the fastest. How are they getting their clients to pay them so quickly? We asked, and they were only too happy to share.
Independent contractors are responsible for reporting all income to the IRS, whether or not you received the right forms from your clients. 1099 forms are used to report income to the IRS. This article will help prod your clients to file their 1099 forms.
Who has to report/file form 1099?
Companies/Employers who made payments of $600 or more to independent contractors who provide trade or business services.
When to report?
If the following four conditions are met, you must generally report a payment as nonemployee compensation.
You made the payment to someone who is not your employee;
You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);
You made the payment to an individual, partnership, estate, or, in some cases, a corporation;
You made payments to the payee of at least $600 during year.
Which 1099 form should you use?
Typically, you will receive or file the 1099-Misc form to report income from independent contracting / freelancing. If you have hired contractors you will need to file 1099s and if you are contractor you may receive 1099s from the companies with which you did business.
For other sources of income, though, you will need to use other 1099 forms. There are many other types of form 1099s to report income such as cancellation of debt, dividends, or income from interest.
State laws on form 1099
State laws differ on when a business is required to file a 1099. For example, some states have a limit on the amount of income an individual can be paid as 1099 income from a single business to prevent businesses from avoiding paying taxes and benefits to “employees” by paying them as independent contractors. Be sure to check with your accountant for your state’s policies.
Where to get form 1099
If you are filing your 1099s and 1096 by paper, you must file red scannable copies of the forms with the IRS. These red forms can be obtained for free from the IRS by mail (the forms may be ordered online or by calling 1-800-829-3676) or at your local IRS office. You can also buy red forms at your local office supply store.
Also note, do not use a felt tip marker, as the machine scanner cannot read that type of ink.
Important dates to remember
January 31, 2008 — deadline to give Copy B of Form 1099 to the recipient.
February 28, 2008 — deadline to file with the IRS Copy A of Form 1099 as well as Form 1096.
March 31, 2008 — deadline to file forms electronically.
This is presented as general information only and should not be construed as tax advice. If you need help with filing your forms or other accounting help, please contact Heather Villa.
Updated: The owner has been found! Thank you to the good folks at Westside Animal Hospital for getting Psycho back to his owners.
Alright, so this one’s a long shot, admittedly.
But does anybody know this adorable puppy I found today on the way to work?
He was wandering along Glencairn Avenue between Danesbury and Capitol (we’re in Toronto). He was a curious little guy, but clearly petrified; the car that almost ran him over when he darted across the road probably wasn’t much help, either.
Nor did the lack of a collar, just a cute little bandana lovingly tied around his neck.
He seems grateful to have been found, because he’s an incredibly friendly addition to the office environment today; right now he’s over sitting in Levi’s lap while the two of them work away.
I’ll be canvassing the neighbourhood in a bit, trying to figure out where the little guy came from. But we have those “small world” moments here at FreshBooks all the time, so… is anybody missing a dog?
Next Thursday, November 1, Mike and I are heading down to The New New Internet in Washington, D.C. to paint the Mall red.
Because Mike has ended up speaking on the Software as a Service: Benefits Beyond Delivery panel, we have a free pass to hand out to the first person who is willing to wear one of our stylish T-shirts all day. Please send me your T-shirt size, bearing in mind American Apparel sizes are usually one size smaller than you’re used to.
And if any customers of ours would like to meet for dinner on Friday, please drop mike a note.
It’s been 13 days since we announced that we would pay for someone’s ticket to the SEED conference. To earn this right we asked that people submit stories of truly remarkable customer service. We’ve received a slew of outstanding entries. In fact, we’ve had customers of FreshBooks account holders (like Sky IT Support) take the time and write in to tell us stories of how FreshBooks users provided them with exceptional service. Absolutely marvellous.
Among all the great entries this one stood out:
Hey Mike and the rest of the Freshbooks team – I’m writing to submit to the “best customer service story” contest for the SEED conference ticket.
The Internet company that I believe has the best customer service going today is Zappos.com. Having ordered from Zappos.com many times, their customer service is phenomenal, and they’re driven by creating the best experience possible for their customers. They’ve truly created a culture of service, this is hard to do within the organization but when they get it right, it’s truly amazing to witness.
Speaking of witnessing it, I had the opportunity to visit Zappos.com in January of this year. I was blown away at how welcoming all of the employees were and how as we walk through the entire building, everyone we passed stood up smiled and waved hello to us. It was a fantastic look at the behind the scenes operation of a truly focused company. I blogged about it here. After our trip there, and we were so inspired as a company that when we rolled out our “customer service is the new marketing” initiative, we referenced our experience at Zappos.
As far as the best customer service story I’ve ever come across, actually came upon it the other day. It’s not an original story by me, but I think it’s a wonderful example of the extent to which Zappos will go to show that it cares about its customers. Here’s the post:
I Heart Zappos
I really do.
One bright, extraordinary note in all of the sad stuff of the last few weeks – in May we had ordered several pairs of shoes from Zappos for my mom. She’d lost a lot of weight, and her old shoes were all too big. She had a whole new wardrobe of clothes in pretty colors, that fit, so I wanted her to have some pretty shoes that fit, too, when I took her up to Oregon to stay where her sister is. Out of seven pairs, only two fit. Not bad considering she’d never been this thin, so I was winging it, and the return shipping is free.
The rest were here waiting to be returned. Because of various circumstances – lost label, my mom being hospitalized and me being away, the shoes were never sent back. There’s a time limit on the return of 15 days. Remember this. When you do a return to them, they pay the shipping, but you have to get the shoes to UPS yourself. Remember this, also.
When I came home this last time, I had an email from Zappos asking about the shoes, since they hadn’t received them. I was just back and not ready to deal with that, so I replied that my mom had died but that I’d send the shoes as soon as I could. They emailed back that they had arranged with UPS to pick up the shoes, so I wouldn’t have to take the time to do it myself. I was so touched. That’s going against corporate policy.
Yesterday, when I came home from town, a florist delivery man was just leaving. It was a beautiful arrangement in a basket with white lilies and roses and carnations. Big and lush and fragrant. I opened the card, and it was from Zappos. I burst into tears. I’m a sucker for kindness, and if that isn’t one of the nicest things I’ve ever had happen to me, I don’t know what is. So…
IF YOU BUY SHOES ONLINE, GET THEM FROM ZAPPOS.
With hearts like theirs, you know they’re good to do business with.
Tony Hseih has done a fantastic job building an culture of service within Zappos. During my visit I learned the extent to which the employees are empowered to go to keep a customer happy. If a customer cannot find a shoe they’re looking for on Zappos.com, the customer support rep is empowered to browse competitors websites, Nordstrom.com, shoes.com, and help the customer look for the shoe that they want all the while on the phone with the customer. This is truly about keeping the customer happy.
Zappos recently introduced an industry first free shipping both ways. This encourages people to order as many issues as they want in different sizes and try them on. Through this initiative Zappos is competing directly with brick-and-mortar high-end shoe stores.
The story above is not the first I’ve heard of Zappos ordering flowers for customers. The culture of WOW encourages employees to go the extra distance to wow their customers with great customer service. This is truly the company with the best customer service going today. I hope this wins the magic ticket! Thanks for caring about customer service.
This account of great customer service — and more importantly a culture of extraordinary customer experiences — was submitted by Chris Schultz of Voodoo Ventures. Congratulations Chris — you’ve earned yourself a ticket to SEED.
We are going to post one or two of the other entries because the companies and the people they highlight deserve the recognition. Thank you to everyone who entered. We’re going to send you all FreshBooks shirts as a token of our thanks.
Tomorrow morning (Wednesday, October 24, 2007), we are releasing FreshBooks version 4.1.
Please expect a short period of downtime between 4:00 AM and 7:00 AM EDT (NOTE: this is 1:00am in LA, 4:00am in NYC, 9:00am in London, 4:00pm in Hong Kong, and 5:00pm in Melbourne).
We sent a detailed email out about this and other FreshBooks news this morning. If you didn’t receive it, you can go here to view it online.
Version 4.1 includes a number of infrastructure changes in our back-end architecture as well as some small tweaks, but the most noticeable changes will be part of the next version (Version 4.2) scheduled to be released before the end of this year.
That’s a very common question everyone here at FreshBooks hears from people calling and e-mailing in. I’ll try answering the best way I know how: through a little question-and-answer session.
Here are the questions we usually ask someone who calls in:
1. Where are you based?
If you’re in the USA—you have a lot of options. Canada—you have a few options. The rest of the world—sadly, very few options. If you are outside of the United States or Canada, we usually skip to recommending PayPal and leave it at that. There are more options, but FreshBooks doesn’t support them yet. We hope to soon, but in the meantime, PayPal is your best bet.
2. Do you already have a merchant account?
Or more to the point, do you even know what a merchant account is?
A merchant account is essentially a bank account that handles your funds received via credit cards. They normally take a percentage off of every transaction. This is called a “discount rate.” If you have a storefront or a retail business and you are swiping people’s cards, then you already have a merchant account.
If you want to start accepting payments online, you’ll need to give your merchant provider a call and ask for an Internet merchant account—this is different from a regular merchant account, because it gives you the ability to process credit cards without the card being physically present for the transaction.
3. If you do have a merchant account, do you already have an account with a payment gateway like Authorize.net or PayPal?
If so, chances are you already know what you’re doing and you aren’t even reading this article. If you don’t, then you can read on and I’ll give some more details on what a payment gateway is and what the options are.
A payment gateway is kind of like the middleman between your customer and you or your merchant account. They normally have a merchant login where you can manage your account, run reports, submit refunds, and even send invoices. None of them have the advanced capabilities of FreshBooks, but if you run a retail business or a storefront and all you want to do is send one invoice online and get paid, you can probably do that directly through your payment gateway. (We’re all about honesty here at FreshBooks!)
Of course, if you want to start managing all your invoices, keep track of everything and get paid faster, then you can use FreshBooks in conjunction with a payment gateway.
Payment gateways usually charge a monthly fee (PayPal is the only exception) and sometimes a setup fee. Many of them also require an online merchant account, but will usually help you get one if you don’t already have one.
Here are your options when it comes to payment gateways:
PayPal
The big daddy of them all. PayPal is incredibly useful and powerful and scary at the same time. The standard offering is free to use and provides any very small business that wants to quickly accept payments online a near-perfect solution. You can read all about PayPal from any number of sources. They have a number of offerings that work with FreshBooks:
PayPal Standard: This is the basic PayPal account. To start collecting on your FreshBooks invoices with PayPal Standard, you just need to enter your PayPal ID in your FreshBooks settings. When you send an invoice, there will be a link to pay and it will take your customer to a confirmation page that shows the total amount and provides a link to PayPal. Your customer then clicks that button and follows the instructions on PayPal’s site to pay the invoice. After they complete their payment, they must click “Return to Merchant,” at which point they’re directed back to FreshBooks and your invoice gets updated as “paid.” You can see a demonstration of this entire process in this blog post.
PayPal Payflow Pro: This is PayPal’s new offering, which they recently purchased from VeriSign. It is a fully functional payment gateway that you can use with FreshBooks to collect one-time payments as well as automatically charge your customer’s credit card. Payflow Pro requires you to obtain an Internet merchant account. It has proven to be a very flexible solution and gives you all the features you’ll ever need in a payment gateway. The service has not been as reliable since PayPal took it over, but it’s still top-notch.
PayPal Website Payments Pro: I’m not sure of the history behind PayPal Website Payments Pro (let’s shorten it to PayPal WPP so I don’t get a cramp typing this article), but I think PayPal created this service before they decided to purchase Payflow Pro from VeriSign because from the customer’s perspective it is almost identical. It provides all the same functionality, except that you don’t need to go out and get a merchant account. This is advantageous if you don’t like paperwork and/or your business is fairly new. Getting a merchant account can sometimes take some time and they make it more difficult if you are just starting out. Some of the downsides for FreshBooks users is that it is only available in the USA (the UK version is just a re-badged version of Payflow Pro). It is also controlled by PayPal and they won’t let you send recurring transactions, so you can’t use it to automatically charge your customer’s credit card.
That pretty much covers their offerings; you can read more about PayPal here. They also have something called Express Payment that is available if you have WPP, but express payment is just PayPal Standard on steroids. It will provide more consistency, but it still requires your customer to have a PayPal account.
Authorize.Net
Authorize.Net has built a very good reputation as the leader in online payment gateways for small business. They have a great solution with a no-nonsense gateway that just works. They provide a more direct solution than PayPal Standard, allowing your customer to seamlessly pay you with a credit card without having to leave your FreshBooks account. This offers a completely branded payment experience for your customers. Authorize.Net’s prices are reasonable and from what we have experienced, their service is great. When you refer people to sign up to a payment gateway, no news is good news; we’ve received largely positive feedback from new customers getting going with Authorize.Net and existing customers continuing to use the service.
FreshBooks has integrated with a host of other payment gateways. A select group of them are capable of handling automatically charging your customer’s credit card on a recurring basis. They include: Landmark (a smaller provider with excellent rates and easy online signup), Payment Processing Inc. (a U.S.-based service that actually purchased what was formerly a Canadian gateway, Paradata), iTransact (a larger gateway that also has a good reputation from our standpoint because we haven’t received any complaints), Linkpoint (ditto to iTransact), PSiGate (a Canadian gateway—yaay Canada!—they are a great solution if you are a Canadian business).
The outliers
A special payment gateway that doesn’t actually process credit cards is Electracash. They can enable you to collect your payment with something called an eCheck on the U.S.-based ACH (Automated Clearing House) network. This is a cool service, but be warned it doesn’t work for Canadian businesses, and they usually insist on holding back a certain amount of money for a designated time period until you become a more trusted merchant. Authorize.net and PayPal Payflow Pro also process ACH payments, but they will still charge a percentage instead of the low per-transaction fees Electracash charges.
The final one worth mention is 2Checkout.com. To be honest I don’t know much about 2Checkout.com, except they seem to be very simple to get set up and will work with very small businesses much like PayPal. They also offer their services to countries outside of the US and Canada.
In conclusion
I am a big believer in giving your customers an easy option to pay you because any barriers to payment you can remove will increase your cash flow and that is arguably the best thing you can do for your small business. If you want to get going immediately, PayPal is a great place to start. If you are ready for the next step, then take your pick of payment gateways that work seamlessly with FreshBooks.
If you are thirsting for more knowledge, check out the FAQ inside our help manual. Good luck, and happy collecting!
Believe it or not we are nearing the close of another year. If you are a small business owner you can ring in the New Year with peace of mind by taking a few simple steps now. If you use accounting software like QuickBooks, you can use the year end checklist found in the Help menu of the software to assist you in your planning
Step 1. Reconcile your accounts.
Account for all of your transactions – bank, cash, and credit cards. Make sure that you have all of your month end statements and documentation. Get your Bank Reconciliation Statements. It is good practice to prepare this monthly. You will need to look for any differences in your bank statements against the entries in your register. You are looking for
Checks issued but not cashed.
Deposits that have not been credited.
Direct deposits and debits and any other transactions that may have created a discrepancy.
Step 2. Track expenses.
Most of you are using the cash-basis accounting method (essentially, what matters most is cash coming in and going out of your bank account). If so, you need to keep track of prepaid expenses and income. These prepaid items need to be separated from standard expenses and income as they are going to be an asset or a liability and need to be recorded as such on your balance sheet.
If you have received bills for certain expenses which will be paid later, and would like to record them as current year expenses, you can only do that if you are using an accrual accounting method (essentially, what matters most is what is owed to you or by you, not the actual cash payments). However, if you make sure to pay the bills before the end of the year than they would qualify as valid expenses under the cash-basis accounting method.
Step 3. Track depreciation.
You will also need to account for non-cash expenses like depreciation. If you have identified certain debts as non-recoverable, show them as bad debts. Keep track of your fixed assets. If you have added assets or disposed of them you will need to verify that these entries have been made. If you are planning to buy any new assets in the near future, it is better to buy it in the current financial year. You will be able to reduce your current year tax liability and benefit from depreciation. Of course these transactions are based on the current requirements and current financial status of business.
Step 4. Track staff salary.
Certain expenses, such as staff salary must be paid by year end. You do not want to carry this into the next year as an outstanding expense. You can reduce your current year income by delaying some of you fourth quarter sales orders to the next year. Once again your tax savings is dependent on the financial status of your business.
Step 5. Outstanding accounts receivable.
Finally, you will need to account for income accrued for the year but not received. This depends on your method. As previously mentioned for the accrual basis it will be recorded as Income (period!) for a cash basis it will not be recorded as anything – it is not an income until payment is received. Now what it means when I say “account for” is to determine whether these should remain as open accounts receivable or whether they should be written off as a bad debt. Typically if it is over 90 days it should be taken off the books and written off as a bad debt (providing a deduction to cancel out the income).
Finally, hit print and relax with an egg nog.
Once you have accounted for and entered all of your transactions into your accounting system you can generate your year end financial statements. These statements include your Profit and Loss Statements and Balance Sheet. Review the statements to ensure there are no inaccuracies or abnormalities.
These few planning steps will not only prepare you for tax time but will enable you to plan for next year. Then you can relax and enjoy a peaceful year end.
Last week I had the good fortune to be interviewed on Business at Night by Greg Hebert of CFRA in Ottawa. I talked about a variety of things including who FreshBooks is for, why to use FreshBooks versus the competition and why I wanted (and built) the first version (”I wanted something that would tell me who owed me what and helped me collect that money”). You can download that interview or listen to it here:
Tonight I’m going to be speaking at the Victory Cafe to the Design Guild of Toronto — a group of entrepreneurs and creative professionals who meets monthly. If you want to come out and say hello, I’m going to be talking about fee structures, billing your clients and the importance of value-based pricing.
Finally, a reminder that we want to pay for your ticket to the SEED conference in Chicago. The offer ends this Wednesday so if you are interested, get on it.
I grew up across the street from a natural ice hockey surface and I learned a lot about Canadian culture and my own character playing shinny on that rink. I still play shinny during the winter here in Toronto. Unfortunately our great city is going through some financing issues, which I think is a real shame because it’s a growth engine for all of Canada, but I digress. As a result of the financial issues, Toronto Mayor David Miller has been cutting public services (including outdoor hockey rinks) which is also a shame, but something he pretty much has to do. Now enter MasterCard…
It’s not very often a big company does something that directly effects me or something that I care about, but MasterCard just did. They are offering $160,000 in no strings attached funding to ensure the Toronto rinks open in December for the holidays, instead of being forced to open in January due to budgetary issues. As a Canadian who believes that outdoor hockey has long shaped and influenced our cultural identity and the character of our youth, I have to say, MasterCard this was one sweet move, you hosers.
FreshBooks is an online invoicing and time tracking service that helps professionals in over 100 countries save time, get paid faster, look professional and focus on what they love to do — their work. Read our customer survey results — 99% recommend FreshBooks. FreshBooks users are served by a tight-knit team of 31 dedicated individuals based in Toronto, Canada who've been at this since 2003.
Alright, so this one’s a long shot, admittedly.
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