Malaysian SMEs risk RM 20,000 fines as e-invoicing nears

Small businesses in Malaysia are facing significant challenges with accounting practices as the country prepares for the implementation of mandatory e-invoicing, with many firms continuing to make costly and avoidable errors.

Core mistakes

Common issues affecting Malaysian small and medium-sized enterprises (SMEs) range from poor record-keeping and misclassified expenses to inadequate preparation for digital requirements such as e-invoicing. These errors can lead to severe financial consequences, including penalties of up to RM 20,000 per offence and overpaid taxes that can accumulate to tens of thousands of ringgit annually.

Chun How Cheah, Spokesperson for QuickBooks Malaysia, commented on the situation: "Too many Malaysian SMEs are still relying on outdated systems, manual record-keeping, and a reactive mindset when it comes to accounting. These habits might feel manageable in the early stages, but they create real risk as the business grows, from tax penalties to missed revenue opportunities."

The requirement for e-invoicing, set to take effect fully by 2025, places additional pressure on small businesses to review and modernise their accounting processes. However, according to QuickBooks Malaysia, a large portion of SMEs remain unprepared.

Financial consequences

Errors in basic accounting tasks present immediate risks for businesses, particularly as regulatory requirements become stricter. Late Sales and Service Tax (SST) filing or non-compliance with e-invoicing protocols can attract fines ranging from RM 200 up to RM 20,000 per offence. Furthermore, misclassifying business expenses may result in RM 5,000 to RM 100,000 in overpaid taxes per year.

Chun How says: "Inconsistent cash flow tracking and poor credit visibility can stall 20% to 30% of potential revenue growth over time. "I've seen SMEs lose access to grants or fail to attract investors simply because their books were a mess."

To avoid these pitfalls, QuickBooks recommends that SMEs digitise their accounting early by adopting cloud-based software, using scanning apps to organise receipts, maintaining a clear understanding of tax obligations from the start, separating business and personal accounts, and consulting with a qualified accountant at least once annually.

Recurring errors

Among the most frequent and avoidable accounting errors highlighted by QuickBooks are poor record-keeping, e-invoicing confusion, misclassification of expenses, failure to reconcile bank transactions, delayed bookkeeping, issues with SST compliance, and mixing personal and business finances.

Many SMEs continue to rely on handwritten notes or simple spreadsheets, which can result in missing receipts, undocumented transactions, and difficulties preparing financial reports or handling audits. With the coming e-invoicing mandate, there is also widespread unawareness and confusion regarding new requirements. Some businesses continue to use static PDF invoices or delay necessary system upgrades, increasing their compliance risks.

Another common mistake involves misclassifying expenses, particularly when business and personal costs are mixed. Over time, this can reduce profit margins and result in significant overpayments of tax if these expenses are not categorised properly. Regular reconciliation of bank transactions is also often neglected, which can leave fraud and accounting discrepancies undetected and present an inaccurate view of available funds.

Chun How commented further: "A single mistake such as not filing SST on time can cost up to RM 20,000 in penalties. But the good news is that most of these issues are completely avoidable."

Delays in bookkeeping, such as deferring paperwork until the end of the year, can result in rushed reporting, errors, and missed compliance deadlines. This reactive approach also deprives business owners of real-time financial insights, disadvantaging them when making business decisions or applying for funding.

Errors in SST registration or application can also prove costly, with fines reaching up to RM 20,000 per offence. Failure to separate business and personal finances further complicates tax reporting and cash flow management, and can undermine valuations needed to access grants or attract investors.

Chun How noted: "We see these mistakes all the time" and addressed the root causes. According to him, "Many entrepreneurs are great at what they do, but they lack financial literacy. They also rely on informal systems like manual ledgers or cash transactions. And some still view accounting software or services as a cost instead of an investment."