A NOTE FROM OUR MANAGING DIRECTOR
I don’t want to sound alarmist, but the end of the financial year is rapidly approaching, meaning you have less than two months left to get your business financials in order.
Before I get to that, I’d like to thank those of you who completed our communications survey. I’m thrilled to say that our communications seem to be ‘hitting the mark’. You told us that you enjoy our email newsletters (once every few months), you’d prefer to not receive direct mail from us, and that LinkedIn and Twitter are a great way for us to share ‘bite-sized’ tips and updates with you. Topic-wise, you enjoy helpful, short tips and articles that you can use to prevent debt and manage cash flow. I think this comment sums up how our clients feel about our communications:
“You do a wonderful job, clearly explaining things, and offering good tips on how to prevent and manage debt, as well as providing good information about cash flow and general business tips”.
Speaking of helpful tips, I’m proud to announce that Optimum Recoveries is a sponsor of Depot[x] in 2016. Intrigued? You can read more about that in this issue.
In our February e-newsletter, we gave you invoicing tips – to increase your chance of full, on-time payment. I hope you were able to put those tips in to practice in your business. If you’d like a refresher, you can read the tips again on my LinkedIn page.
This quarter, our focus is on tidying up those accounts and recovering what’s owed to you before the end of the financial year.
There’s an article that explains what steps you need to take now if you are considering writing off bad debts this tax time.
We set the record straight about the risks of giving your ‘good’ clients ‘second chances’, and provide some simple trigger points that you should build into your business process to know when it’s time to call in an expert to recover that unpaid invoice.
Finally, our Legal Eagles explain how the Personal Property Securities Act can help defend preference claims.
Until next time,
DON’T MISS OUT! WRITING OFF BAD DEBTS AT TAX TIME.
Outstanding invoices can have a significant impact on your bottom line and cash flow.
Engaging a third party collection agency like Optimum Recoveries is an effective way secure payment from debtors. Specialised skills aside, we have access to advanced tools to help locate and communicate with debtors, using new telephone technologies and third-party sources that grant access to debtor information.
Unfortunately, some debts are just simply unrecoverable. These debts are referred to as ‘bad debts’. Debts turn ‘bad’ for a range of reasons, but one of the more common reasons is that the debtor has become insolvent.
However, all is not lost. 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.
As the 15-16 financial year draws to close, you only have a few weeks left to follow all the steps required if you are planning on writing off a bad debt.
So what’s the difference between a regular overdue invoice and a bad debt? Much of it comes down to your efforts in recovering the debt.
You must follow these five steps:
1. Issue a reminder notice
2. Contact the client by phone and mail
3. Issue a formal notice of demand
4. Issue and serve a Summons (Claim) and obtain Judgment
5. Commence an action to enforce Judgment
These steps must be completed before 30 June 2016 for you to legally write the bad debt off, and some of the steps are more complex and time consuming than you might think.
If you need help with any of this, contact us now. If it’s a bad debt that we’re unable to recover for you, we’ll get the ball rolling to ensure you follow the right process so you can legally write it off.
(1) Source: Australian Taxation office Taxation Ruling 92/18(S32).
‘SECOND CHANCES’ – ENOUGH IS ENOUGH!
Good relationships go a long way in business.
However, when it comes to recovering what’s owed to you, there’s a danger in placing too much emphasis on the relationship, while your bottom line suffers.
We’ve heard it all before. “They’re a good customer, I wanted to give them a second chance”.
In removing the emotion of the relationship, we quickly realise that they are only a good customer if they hold up their end of the deal by paying you on time, in full.
In our experience, by the time an outstanding debt has been referred to us, the customer has been given three, four or five ‘second’ chances.
Consider this: each time you give your client a ‘second’ chance, your invoice goes to the bottom of their pile.
Collections is all about consistency. If you agree to a payment extension with your client, put the agreement in writing, and then follow up swiftly if the agreed extension date passes. If you gave them a ‘second chance’ last time and they let you down, perhaps its time to take a step back, remove the emotion from the transaction, and have it dealt with by an expert.
‘Hoping’ that your client will come through with payment can leave your business exposed to significant risk.
TIMING IS EVERYTHING: WHEN IS THE TIME RIGHT TO CALL IN A DEBT COLLECTOR?
Our new debt collection clients often ask us “should we have called you sooner?”
Most of the time, the answer is ‘yes’.
A recent Sensis Business Index survey found almost one in four businesses have been forced to wait more than six months for an invoice to be paid. Manufacturing, construction and wholesale industries are the worst late payers.
It’s simple, really. The longer an unpaid debt is left idle, the smaller the chance of full recovery becomes.
Many people also don’t realise there is a statute of limitations for debt pursuit. Each state and territory has a different period of time where a debt can be pursued and has legislation in place that outlines what happens when the limitation period has expired.
In other words, if you leave an unpaid invoice unpaid for too long, you might not legally be able to recover the debt, even if you have held up your end of the deal.
So when is the right time to refer your unpaid invoice to a specialist debt collector? If your answer to these few questions is ‘yes’, then it’s time to refer the matter to us:
1. Has the product / service been delivered by you as agreed?
2. Is the invoice overdue by more than 60 days?
3. Have you sent the client a reminder, in writing?
4. Have you attempted phone contact with the client to follow up
on the amount outstanding (and kept records of these calls?)
5. Is your business suffering from cash flow issues as a result of the unpaid invoice?
FROM OUR LEGAL EAGLES: UNFAIR PREFERENCE CLAIMS: DEFEND YOUR INTERESTS!
When it comes when buying, selling, leasing or hiring out goods, or selling valuable goods on consignment, the Personal Property Securities Register (PPSR) is a simple way to protect your business from risk.
Businesses that register their security interests over personal property on the PPSR gain rights over the personal property in the event that the other party fails to fulfil certain obligations (such as repaying a loan).
However, there are some legal loopholes to be aware of.
Payments received by unsecured trade creditors from debtor companies in the six months prior to a company going into liquidation may be clawed back by a liquidator pursuant to an ‘unfair preference payment claim’.
Unfair preference claims are only able to be made against creditors who hold an unsecured debt as compared to a secured debt.
The good news is, there are some defences available to a creditor to defeat an unfair preference claim by a liquidator, including:
– Where valuable consideration was provided by the creditor;
– Payment was received by the creditor in good faith; and
– The creditor had no reason to suspect the insolvency of the company.
A further defence also exists under provisions of Personal Property Securities Act 2009 (Cth) (PPSA). Certain sections of the Corporations Act 2001 (Cth) were also amended with the commencement of the PPSA which now means that suppliers trading under retention of title arrangements who have properly registered their rights on the Personal Property Securities Register (PPSR) are secured and therefore not open to unfair preference claims in some circumstances.
This defence is limited to the amount for which the registered security interest relates. For any amounts not reflected in the value of the security, the debt will be deemed unsecured. This means that if the value of the assets is less than the value of the debt, the balance debt is only secured to the value of the assets.
This highlights the importance of retention of title clauses in your terms of trade, and registration of security interests on the PPSR.
Contact the Optimum team now to arrange for a review of your current documents so you are protected going forward.
[X] MARKS THE SPOT:
PROUD SPONSORS OF DEPOT[X]
We’re proud to announce that we’re sponsors of the DEPOT[x] event series in 2016.
DEPOT[x] nights are organised by BusinessDEPOT, a Queensland-based full service business advisory firm on a mission to help passionate individuals and businesses reach their potential.
The free events provide a unique opportunity to hear directly from industry experts, where you’ll also be able to network with other businesses and potential customers over some nibbles and drinks.
Spaces are limited. The event in April booked out very quickly, so to ensure you don’t miss out on the next event on 25 May, we encourage you register now!
We’re also a proud member of the ‘Collective’ at Business Depot, a group of hand-picked suppliers that work with Business Depot clients to help grow their business and unleash their potential.
To find out more about BusinessDEPOT, take a look at their website, or follow them on Twitter or LinkedIn.