Small Business – Creditor Watch – Must Read

Right now, business owners are feeling the impact of the current economic conditions.

Interest rates are rising to slow down the economy and there are labour shortages across most sectors. It is hitting small business by reducing profits due to increased loan payments and leaving consumers with less money to spend.

All the moving parts of the economy are happening around us, but it is important to remember that at any given time the current economic situation can’t always stay as it is, it is completely normal for the economy to experience ups and downs.

This morning I read an article written by Phillip King for Accountants daily, the title was ‘Small business must be ruthless over payments: Creditor Watch’.

The article talks about small business being on the frontline of the downturn and that they need to be more ruthless to survive.

We have been talking to clients about this and advising that even the best of customers who have paid your accounts on time for years can be at risk, inturn putting your business at risk.

Creditor Watch report that payment default rates in October for small business are three times worse than for big business, reflecting the difficulty small business have enforcing payment terms and collecting on payment arrears.

Business to business trade default are already increasing, business will suffer if they are not being paid.

The article states that ‘over the next two years cash flow will be king, and small business should be as ruthless as big business in demanding invoices owed ‘

This is not only important over the next two years, it always will be.

One of the first things Ross Taggart taught me about small business as a trainee was that ‘CASH IS KING’.

TAKE ACTION

Right now business owners NEED to be on the look out for signs of Insolvency, do what they can to prevent bad debts and take swift action to recover debts.

Insolvencies are on the rise and we encourage business owners to be proactive regarding getting paid.

Just as importantly keep an eye on your own financial situation.

BE ON THE LOOK OUT FOR WARNING SIGNS

Be vigilant and look for;

  • Customers not paying your accounts in the timeframe they usually would
  • High Staff Turnover
  • Poor cash flow
  • Can’t pay your bills
  • Don’t respond to your calls or emails in a timely manner or ghosting you
  • Poor quality records
  • Loss of customers
  • Industry talk about the business
  • Business owner and director disputes
  • Physical deterioration of business premises
  • Inability to access finance
  • ATO Debt

You MUST act quickly if you see the signs.

PREVENT BAD DEBTS

Some ASIC tips to prevent bad debts include;

  • Perform background checks on customers before doing business with them
  • Only send out goods or services after customers pay their bill
  • Provide simple, easy and clear payment options
  • Invoice customers quickly
  • Give discounts for paying on time or early
  • Create sensible limits on the credit that customers can take out with your business
  • Check whether a company is in liquidation or deregistered on ASIC registers

DEBT RECOVERY

  • Revise your process to manage payments and recover debt – be tougher than usual on late payers
  • Review contract terms
  • Regularly monitor when payments are due and received/not received
  • Contact customers in writing to request payment
  • If a customer responds with a question about the goods or services you provided respond in a timely manner
  • Keep records of all customer correspondence
  • Set up regular payment reminders
  • Send formal letters of demand
  • Consider hiring a debt collector if customers continue not to pay
  • Consider legal action where necessary

HOW WE CAN SUPPORT YOU

Our qualified and experienced team can help you in the following ways;

  • Review your cash position now and into the next 12 months
  • Provide advice regarding your Debtor Management Procedure
  • Show you how your accounting software can help you keep a close eye on receivables
  • Provide support to you when recovering a receivable
  • Search your customer details on ASIC databases
  • Refer you to a debt collection agency
  • Refer you to a specialist legal advisor

The team at Hamilton Taggart are here to support you each step of the way.

Melanie Hamilton

Back To Top