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As businesses dust off the rubble of COVID-19, a new risk emerges: zombie companies. That is, businesses that may have been artificially propped up by government stimulus packages but have a severe debt problem in the background. In the rush to resume trade, your business may unknowingly issue goods or services to a zombie company that has a low likelihood of paying you on time.

So, what can you do to protect your business?

Ken Torres is ARMA’s Head of Commercial and in recent weeks has helped dozens of SME businesses recover the liabilities owing to them. “We have a lot more options to recover the debt when the creditor’s business has stringent credit processes and documentation in place,” says Ken.

However, many businesses arrive at ARMA’s debt recovery doors with little more than a handshake deal to protect their assets. A handshake deal is literally that: a trade agreement guaranteed only by a handshake; it is not a formal agreement that documents the buyer’s accountability to pay back the credit that the supplier has extended to them.

“Handshake deals are more common than you’d think, particularly among credit-heavy building and construction businesses,” reports Ken.

At ARMA, we advise our clients to proactively safeguard their business from credit risks. That means having the right risk management protocols in place to manage and mitigate accounts receivable credit risks from the get-go.

Check that your credit policy and protocols include the following conditions. If you need assistance to understand your options or update your protocols, ARMA’s legal service can help.

Protect and Report Your Credit Interests

PPSR: The Personal Properties Security Register is an Australian government-administered register where you can register your security interest in goods that you have supplied but not yet been paid for. Check PPSR timing rules as there are rules about when you need to register your security interests on the PPSR for them to be effective.

Lodge a Credit Default: As a credit provider, you can lodge a customer’s payment default with a credit reporting agency. You need to have your customer’s authority to access their credit file (collect this in your credit application form). You can lodge a default if the payment is at least 60 days overdue, is valued at $150 or more, and you have sent written notices requesting payment and advising of your intention to lodge a default (timing applies to meet the notice requirements).

Inclusions for Your Accounts Receivable Credit Policy

Personal Guarantees/Director Guarantees: Your credit contract can include a signed guarantee that if your business customer fails, it agrees that its personal guarantor or business directors are personally liable for any debts under the agreement.

Caveats: If your terms and conditions include caveats you can lodge a caveat claiming an interest in the debtor’s property as security for the payment of your goods and services.

Cost Clause: Include a cost clause in your contract stating that your debtor agrees to pay specified costs you incur to recover any outstanding debt. This may include all reasonable out-of-pocket expenses and fees.

Credit Check Your Customers

Business credit report: You can buy a basic or a detailed business credit report from a credit reporting agency like CreditorWatch. You’ll be able to understand if your customer is paying their bills on time, and the likelihood of them paying late, or defaulting. What’s more, the reports include details on adverse director activity, court actions, and credit enquiries.


Advanced searches: Credit reporting agencies can help you to know your customer even better with advanced searches that verify a customer’s identity, ownership of assets, and any noted involvement in fraudulent activity, bribery, or corruption.

A Disciplined Collection Process


Adiquete resourcing: Purposefully allocate your human and technology resources to match the volume of invoices and payments your business needs to manage. If you under-resource this function, overdue invoices can quickly pile up and that’s when your cash flow suffers.


Key account management: It’s a good idea to identify your high-worth clients and customise a follow-up strategy for them if they pay late. Communicate regularly with your account managers for these clients and leverage their relationship to keep those accounts from ageing.


Credit limits/stops: Allocate a limit to the amount of credit your business is willing to issue every customer account, based on your assessment of the customer’s credit worthiness. Be prepared to put a hold on issuing more credit once your customer reaches their credit limit or exceeds their terms. Credit limits are only effective if you are prepared to enforce them.


Dunning process: Have a plan for your schedule of communications to your accounts receivable customers. You might start with a friendly email reminder when an invoice is seven days overdue, and then a phone call on Day 14. You should also have a clear set of indicators for when to refer the liability to a collections agency (for example, amounts over $1000 that are 60 days overdue.)


Technology: Use applications to move your processes online. Online credit application forms reduce the time, paper, and errors inherent in traditional forms. Automated accounts receivable software can systematically chase overdue invoices for you.



In conclusion

The Aussie ‘she’ll be right attitude’ has left a lot of companies vulnerable to late payments. The new normal in business demands a more stringent approach to safeguarding your business against the threat of bad debts. Without documented collection and credit management protocols and contracts in place, businesses limit their ability to recover unpaid debts. We’ve outlined twelve risk management strategies that can immediately boost your business’ protection against late or default payments.

Talk to ARMA today if you need advice and help to update your credit risk management practices. Contact Eddie Smith at eddie@armagroup.com.au or 0415 351 832 for an obligation-free consultation.

Over the weekend ARMA celebrated our inaugural Crown Club winners trip. While COVID meant we had to change plans, we were able to recognise and reward our top performers with a trip away to the Hunter Valley.





The family first culture has always been a key reason for the success of ARMA. An example of this is our father/son duo Jordan and Michael Irwin.