Under the invoice system, an invoice with omissions or errors cannot be used to deduct tax on purchases, so if there is an error on it, the invoice must be reissued.
Under the invoice system, in order to deduct tax on purchases, it is required to keep invoices that include certain information. The system requires the invoice issuer, as the seller, to deliver a corrected invoice to the buyer if there is any deficiency or error in the originally-delivered invoice.
If the buyer notices that the invoice is incorrect, in principle, it is necessary that they request the seller to correct the invoice and reissue a new invoice with correct information. It is not acceptable for the buyer to correct the incorrect invoice himself.
If a mistake is found on an invoice, the buyer may prepare new documents such as a purchase invoice with correct information and confirm it with the seller; then the new purchase invoice can be considered as a corrected invoice. In such a case, the seller is not required to deliver a revised invoice.
Correction of an actual invoice is essentially limited to the person/company which issued the document, etc.; however, it is possible to create other documents and substitute them as the correct invoice (corrected invoice).
So the preparation of such new document(s) is not limited to the issuer of the initial invoice.
In other words, if there is an error on an invoice, even the buyer can prepare a correct(ed) invoice. Although the invoice system requires both the seller and buyer to keep correct invoices, it is flexible in terms of how to deal with errors. Either the seller or buyer can take action to remedy the original error.
Acceptable methods of delivering a revised invoice include the following: (1) correcting the incorrect information, and delivering a revised invoice that includes all of the items listed; or (2) clarifying the relationship between the original invoice and the revised invoice, and clearly noting the revised items.
It should be noted that it is not acceptable for the buyer to make additions or corrections to the original invoice by himself, so it is not allowed for the person who found the error to contact the other party by phone and then both parties to correct their respective invoices after confirming the corrected part.
In the past, when there was an error on an invoice, it seems that there were cases in which both parties would confirm by telephone the parts where there were errors and correct them, but please note that such corrections will not be allowed under the invoice system.
If you find an error, it is best to contact the other party by phone and ask them to reissue a corrected invoice. You need to avoid a situation where the invoice is mistaken, and as a result the credit for taxable purchases is disallowed.
Many companies likely have loans guaranteed by a credit guarantee association. Let's take another look at credit guarantee association-guaranteed loans.
Credit guarantee associations are institutions that facilitate financing by guaranteeing loans made by banks to companies, and support the development of companies from a financial perspective. There is at least one such association in each of the 47 prefectures in Japan. Banks can provide loans that are guaranteed by credit guarantee associations, because if the borrowing company is unable to repay the loan, the association will subrogate the payment to the bank. The borrower pays a guarantee fee to the credit guarantee association when the loan is executed.
Bank financing can be classified into two categories: proprietary loans and loans guaranteed by credit guarantee associations. The difference is in who bears the burden of the bad debt if the company becomes unable to repay the loan in the future. In the case of proprietary loans, the bank is responsible for 100% of the loan, but in the case of guaranteed loans, the credit guarantee association will repay the bank on behalf of the company. The latter case is called (a) subrogated repayment. After subrogation, the credit guarantee association becomes a creditor of the company, instead of the bank. The credit guarantee association bears 80% of the subrogated repayment amount, but depending on the guarantee system used, it may bear 100%.
In addition, there are bank loans guaranteed by non-banks rather than credit guarantee associations. However, proprietary loans and loans guaranteed by credit guarantee associations are still the mainstream.
For proprietary loans, loan approval is naturally stricter, because the bank bears 100% of the risk of loss.
Therefore, companies that have difficulty in obtaining proprietary loans obtain bank loans thanks to guarantees from credit guarantee associations.
Companies that have just started up or have been in business for two or three years and have not yet received a loan from a bank will generally obtain a loan with a guarantee from a guarantee association or from the Japan Finance Corporation's National Life Business (日本政策金融公庫の国民生活事業).
As the company grows and its performance and financial position improve, and as the company's track record of loan repayments is extended, it should be able to obtain proprietary loans from a bank.
While the primary reason for a company to utilize a credit guarantee association is because it has difficulty in obtaining a loan from a bank on a pro-rata basis, there are other advantages to taking out a credit guarantee association-guaranteed loan.
The national and local governments offer institutional loans that are guaranteed by credit guarantee associations. Some of these loans offer lower interest rates, subsidized interest rates, and partial or full subsidies on the guarantee fees paid to the credit guarantee associations. By using these institutional loans, your company can save on interest and guarantee fees.
In addition, loans guaranteed by credit guarantee associations can be repaid over a longer repayment period than with conventional loans. The longer the repayment period, the greater the risk of default during the period, so banks try to make loans with the shortest possible repayment period.
However, this is not the case with loans which are guaranteed by credit guarantee associations. Even for working capital, it is possible to obtain a loan for a longer period of 7-10 years.
In last month's issue, we discussed loans on deed and loan notes, two well-known methods of bank financing. What other types of bank financing are there? Let's understand the types and methods of loans, and how to use them to help improve your company's cash flow.
An overdraft is a method of financing in which a company’s maximum loan amount is set, and it can freely borrow and repay up to the maximum amount*. For example, if your company has a set overdraft limit of 100 million yen, you can borrow and repay amounts at any time up to the 100 million yen limit.
*Maximum amount: The maximum amount to which a mortgagee is entitled to receive preferential repayment based on their revolving mortgage.
The advantage of an overdraft is that a borrower can borrow and pay the loan back at any time, as mentioned above. The interest rate depends on the amount borrowed and the number of days the loan is for, so a borrower can save on interest by making repayments when they have sufficient funds.
In order to be able to use an overdraft, the prospective borrower must pass the bank's screening process and sign an overdraft agreement with the bank. Overdrafts are considered the most difficult of all bank loans to qualify for. This is because there is no fixed repayment date, as there is for a loan on deed or a loan note; also, the borrower can choose to leave the loan unpaid. The fact that there is no fixed repayment date means that banks cannot demand repayment on each due date. Overdrafts with a limit of more than 10 million yen will only be approved for very good companies. You'll want to improve your company's financial position and performance, so that you can be approved by the bank to set up an overdraft plan.
Note discounting is a method of raising funds by having a bank purchase notes when a company makes a sale and collects accounts receivable not in cash but in notes drawn by the customer. The bank collects on the notes on the due date. However, if the note is not honored, the bank cannot collect on it, so it asks the company that discounted the note to return the money the bank lent. Until the notes are collected on the due date, it is the same situation as extending a loan to the company that discounted the notes; thus, note discounting can be said to be one method of financing.
Note discounting is one method of bank financing, but it has the advantage that the overall amount borrowed does not increase because it is not recorded as a loan on the balance sheet. Therefore, the financial position of the company looks better at a glance than with other financing methods. In addition, it is thought that there is an advantage in that it is not necessary to repay, basically because the responsibility to get repaid lies with the bank which bought the bill, and collects it on the due date.
In note discounting, not only the company discounting the note, but also the company issuing the discounted bill - i.e., the drawer of the bill - is screened. If your company passes a bank’s screening, you will be able to discount bills at the bank. However, in the beginning, an organization will often be checked each time it applies for such discounting.
Note discounting is the easiest financing method for banks among the four methods of bank financing (loans on deed, loan notes, overdrafts, and note discounting). Therefore, it is ideal to keep notes on hand without discounting them when you receive them, and to get working capital from banks via other types of loans.
The idea is that since note discounting is an easy method to utilize, at any time, you’ll want to hold off on doing it unless and until an emergency arises.