Let’s just take a moment to stop and smell the economy (after all, roses are yet to bloom).

Inflation is still above the RBA’s goal, interest rates are still high (with a cut maybe by October/November 2024 if we are lucky), there are increasing rates of insolvencies, spending is down and the cost of living is up. If your debtor’s ledger is getting out of hand, then join the club. Your customers will see you as their de facto bank until you get serious about collections (if you haven’t already).

There is one other dark cloud on the horizon that you can deal with before matters get out of hand. In the same way that your cash flow can be tight, the Australian Government has the same issue. Yes, the ATO (as the nation’s collection agency) is cracking down on overdue debts. The statistics collected by CreditorWatch paint the following picture: –

1. ATO information received by CreditorWatch shows that the monthly disclosure numbers are now averaging over 5,000 per month.

2. Preliminary analyses show a 30-fold increase in the probability of business failure if a tax default is present.

3. The high-risk industries are Construction (24.4 per cent), Professional, Scientific and Technical Services (12.8 per cent), Retail Trade (10.3 per cent) and Food and Beverage Services (9.3 per cent).

4. Although those four Industry groups account for over 50 per cent of notifications, other data shows sales and the dollar value of invoices are declining and accounts receivable is increasing as slow payments dominate many industries.

Throw in some global disruption and a war or three and you would be forgiven for thinking all is doomed. However, you can try to control the external factors. The ATO action will cause some businesses to fail but don’t let it take you down too.

Here’s some tips and tricks to stay as best protected as you can:-

1. If you are the subject of ATO activity, then take a look at our article article on DPNs and what to do. Prevention is better than cure, if you are in trouble then seek advice – that next big order will not save you if your fundamentals are flawed.
2. Avoid being put into a vulnerable position by your creditors. Consider changing how you onboard customers and verify information provided by them. Remember the collection process starts when the customer first comes onboard.
3. Good business starts with good documentation that protects your position. Have your terms and conditions assessed by a lawyer to find out your high-risk areas and how best to enhance your legal protection.
4. Secure your debts by implementing the PPSA into your documentation and registering on the PPSR. Unsure how it works? Reach out for help and be guided towards best practice. You can have your PPSA clauses assessed for free by FCW Lawyers here to make sure your PPSA registrations aren’t invalid.
5. Consider obtaining Director’s Personal Guarantees as a matter of course for company accounts and make it part of your credit assessment process (“We require” not “Would you mind?”). If a customer is not prepared to back their own business, then why should you?
6. Keep a tight rein on collections – get firm commitments, not “when I get paid” or “in a couple of weeks”. You need a set date and an undertaking to stick to it. Avoid accepting lump sum payments and direct customers towards paying specific invoices to avoid future unfair preference claims.
7. While the ATO is increasing its activity, you need to be proactive too. If you are under ATO scrutiny, then take advice NOW. If you are finding trading conditions tough (like many others in the current climate) then now is the time to get your business in order.