The trigger
RecycleSmart's drivers, the people who collect items from households, are contractors. With three of them the process was fine: they invoiced monthly, we paid on receipt. But it broke as a model long before it broke in practice.
Every additional driver meant another invoice to chase and more errors to fix over email, and payment cycles stretched out for people living pay cheque to pay cheque. Growing the driver network meant growing the admin behind it at the same rate. That's not a problem you solve with a better spreadsheet: it's a cap on how big the business can get.
What we did
We moved to Recipient Created Tax Invoices. Instead of the driver invoicing us, RecycleSmart generates the invoice on their behalf, from job data we already hold.
It's a mechanism the ATO recognises and it's common across gig platforms, but it only works if the setup is right: a current written agreement with each contractor, both parties registered for GST, and a supply type covered by the ATO's determination. Where a driver wasn't registered for GST, which is common below the turnover threshold, they received the same document without the tax invoice elements.
It didn't need specialised software. Xero and its API automate about 90% of the process.
The outcome
- Payment moved from monthly to fortnightly, with cash in the driver's account the next business day.
- Nobody chases anybody. Drivers stopped chasing us for payment, and we stopped chasing them for invoices.
- Faster, more predictable pay improved driver satisfaction and retention.
- The model scaled past 50 contractors with no extra admin headcount. A run of several hundred contractors takes under an hour.
What I'd tell a founder
- If you pay more than a handful of contractors, RCTI is probably your answer. Most founders have never heard of it.
- Do the setup properly. The written agreement, the ATO determination and each contractor's GST status all matter, because the mechanism is only valid if the paperwork is.
- Collect and verify each contractor's ABN and GST registration yourself. A surprising number get their own status wrong.
- Treat payment speed as a retention lever, not a finance efficiency. For contractors living pay cheque to pay cheque, fortnightly and next-day beats monthly and eventually.
- Start before it hurts. At three contractors this is a nice-to-have. At fifty it's the difference between scaling your network and capping it.