A note from Angela
How’s business been tracking for you? If things have been feeling a bit ‘meh’, then take comfort that you’re not alone. With the Federal Election set for May 18, it’s not surprising that business optimism seems to be flagging a little. People are waiting to see if Australia will have yet another leadership change or not, and what the election result will mean to the state of our economy. We can’t predict the result, but we do have confidence that there will be improved business certainty after it’s all over. So hang in there, and soon we’ll be sliding into the end of the 2019 financial year.
In fact, can you believe that June 30 is only six and a half weeks away? Now is the time to be getting your ducks in a row before EOFY. Take a look at our article that outlines the steps you can take now to clear those aged receivables and prepare for tax time.
Also in this issue, we analyse recent figures about court actions and bankruptcies around the country, and how, according to The Australian Small Business and Family Enterprise Ombudsman, ‘selfish and shortsighted’ big businesses are the slowest payers.
Until next time,
Angela
Big business hurting small business
When it comes to pushing out payment terms, it’s the big guys who are the main offenders.
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) recently released a report into the payment terms and times of large businesses. And if you’re an SME, the results of this report will be a bit hard to swallow.
After surveying 2,400 SMEs and reviewing data from over a thousand large firms, the ASBFEO found that there’s been a growing trend for Australian and multinational businesses to extend payment times to small businesses. In fact, it found that on average, small businesses have to wait 36.7 days to get paid by these big firms.
The report also found that some of Australia’s largest and most well known businesses are reluctant to be transparent about their payment practices. They are simply not willing to disclose how often they are meeting the agreed payment terms of SMEs.
Small Business Ombudsman, Kate Carnell, said the findings showed big businesses to be “selfish and short-sighted”.
She said, “Where large corporations delay payment to their small business suppliers, small business cash flow is unpredictable and presents significant difficulties in their ability to access and service finance.
“Cash flow is king to small business – poor cash flow is the primary reason for insolvency in Australia.”
Carnell is now calling for these big businesses to be named and shamed through the creation of a national payments register that would force them to report on their small business payment terms.
We at Optimum are heartily in favour of this register, but is it enough to just sit back and wait until this (hopefully) eventuates? We think not.
When you consider that around half the 2,400 SMEs that were surveyed reported that over 40% of their invoices were paid late last financial year, and that they spent up to 10 hours making follow-up calls and emails to secure payment, the impact of late payments can be devastating. Along with personal stress and wasted time, it can significantly affect the ongoing viability of the business.
If you’re feeling the pinch because of poor payment performances of big businesses, maybe it’s time to call in the experts. Optimum Recoveries can help speed up the payment cycle, so that your business has the best chance of not just surviving, but growing.
Get in touch with us today.
This is a competition we really don’t want to win
Where are the majority of your customers located? If you answered Queensland, here are some sobering statistics.
A recent small business risk review conducted by CreditorWatch looked into the number of court actions for Quarter 1, 2019. Out of all the states and territories in Australia, Queensland experienced the largest increase in court actions compared to the previous quarter, and also the largest increase in the dollar amounts of these actions. Why is this so worrying? Well, unfortunately, what usually follows a large increase in court actions is a large increase in company wind-ups and insolvencies.
Another interesting stat from this review was in relation to bankruptcies. Queensland was again the winner here, with a significantly higher rate of bankruptcies than any other state or territory. While it’s difficult to put a finger on exactly why the Queensland figure is so large by comparison, it does raise the red flag for anyone with a high proportion of Queensland-based debtors.
So what can you do to stop your business becoming one of these statistics?
Prevention is better than cure. We can’t stress enough how important it is to assess any new clients before extending credit. And it’s just as important to make sure that you don’t “set and forget” with any client as continued monitoring will help reduce or avoid loss. Company searches, credit reports and credit scores provide salient information that will either give you confidence or set alarm bells ringing. You’ll see if there are any court judgements or credit defaults listed against them by other creditors, whether they’ve experienced any significant changes such as a change of director, and how their overall credit performance is rated.
Remember to always look at Cross Directorships, too. Do you know if the director of a company you are doing business with is also the director of another company or companies? If a director has been involved in a failed business before or has a history of payment defaults and court actions, there is a higher propensity for future businesses to fail. Don’t get caught! If you are monitoring directorships, you will be alerted if they have an adverse action registered against them for any of their companies.
All these searches are inexpensive, easy to request, and they could help you avoid cash flow woes or bad debt. To do this, you can register with a credit bureau like CreditorWatch, or call us to help.
Do you have a bad debt that could be written off before June 30?
Now is the time to act.
As tax time rolls around, it’s an excellent opportunity to take stock of any outstanding invoices. Optimum Recoveries offers expert services in helping you recover any invoices that are overdue. We employ our superior debt collection processes and the latest tools and telephone technologies to help secure what’s rightfully yours.
In certain circumstances, however, a debt may become unrecoverable. This usually happens because the debtor has become insolvent. An unrecoverable debt, known as a ‘bad debt’, can hit your bottom line hard. But there is a way to limit the damage.
The Australian Taxation Office allows you to write off bad debts (1), meaning you may be able to pay less tax and claim a GST credit.
The debt in question, however, must be deemed ‘bad’ by the ATO, and not just overdue. The ATO will carefully assess the steps you have taken to try and recover the debt before they allow you to write it off.
There are five steps you must follow:
- Issue a reminder notice
- Contact the client by phone and mail
- Issue a formal notice of demand
- Issue and serve a Summons (Claim) and obtain Judgment
- Commence an action to enforce Judgment
These all have to be completed prior to June 30 to legally write off the bad debt. Steps 4 and 5 can be complicated and time-consuming, so it’s time to get the ball rolling now.
Talk to us about your outstanding invoices. If we can’t successfully recover it because it’s a bad debt, then we’ll guide you through the process to ensure you can write it off legally.
(1) Source: Australian Taxation office Taxation Ruling 92/18(S32).
