Released every month our debt collection blog contains news, stories and tips to keep you informed.
You may recall in our November 2016 edition of Debt Collection news that there were moves within the Government to crack down on late paying large corporations and Government departments.
It appears that this issue has been raised again with the Small Business Ombudsman, Kate Carnell, telling Fairfax Media that she was again conducting a review of payment times and the impact that this has on cash-flow on small businesses in Australia.
This again follows the Ombudsmans review into payment times last year, which we covered in Australian SMEs Owed More Than $10,000, which identified Australian payment times as the worst in the world with invoices paid, on average, 26.4 days past due. In a statement to the media Ms Carnell said, "It is big businesses using small business as a cheap bank," Ms Carnell said. "It really does slow down the economy. Poor cash flow is the primary reason for insolvency in Australia.”
The recent move by the Ombudsman appears to have been prompted by Small Business Minister, Michaelia Cash, who requested in writing advice from the Ombudsman for advice as to the impact payment practices have on small business. Ms Cash said, "I am still getting reports of payment terms of 60, 90 or 120 days or alternatively loans for extended payment terms. I find that very troubling particularly when cash flow is king for small businesses. It continues to be an issue and we will tackle it."
Following last years inquiry the Business Council of Australia launched a voluntary code to ensure that small businesses were paid within 30 days of an invoice being issued. With, however only 47 of 139 members, subscribing to the Code there is now some consideration being given to passing legislation in which to compel payment to ensure small businesses continue to survive.
A short survey is available online for small businesses to complete about the payment times they encounter.
Do you know when your interest on the Personal Property Securities Register (PPSR) is due to expire?
It can be one of the more challenging things that we come across in the debt collection industry. A customer has relocated several times over a number of years however the debt is believed to be secured by an asset which, if repossessed, may finalise the debt or may entice the debtor to enter into a repayment arrangement which is maintained. Upon conducting a search of the PPSR it's then found that the security interest has lapsed. You now have essentially an unsecured debt with very little or no bargaining power.
While many organations used to employ a specialists securities agents this role has gradually been phased out and is now considered a day-to-day role of administration staff who may or may not keep an accurate register and may not know or realise the implications of the interest lapsing especially where a debt has been written-off. If this sounds familiar did you know that if you have a PPSR login that you can generate a report called Registrations Due to Expire?
The report includes information such as:
Back in our February 2017 edition of Debt Collection News we reported councils considering home repossessions to recover unpaid rates in the Bowen Basin Local Government area.
This month it is being reported that Bundaberg Regional Council has listed several properties for auction for rate arrears. A council spokeperson said that in November 2017 council authorised a total of 43 properties to be sold at auction representing outstanding rates of just under $475,000. Of the 43 properties only 7 remain however according to Council many ratepayers will settle their debt prior to the hammer falling.
In a statement a council spokesperson said, "Ratepayers who find themselves facing the auctioning of their property have ignored numerous phone calls, letters and approaches from council's debt management team and authorised recovery agency. It is quite normal for the outstanding rates on a majority of properties to be settled prior to auction".
The auction is scheduled for Thursday, 12 April 2018.
Source: NewsMail - March 2018
The Credit & Investments Ombudsman ("CIO") has this month released a new fact sheet, "Credit Reporting: Enquiries".
The fact sheet covers:
With the end of financial year soon upon us many businesses will be looking at ways in which to reduce their taxable income.
One way in which you can legitimately do this is to write-off your bad debts prior to 30 June. This will effectively mean you do not pay tax on any income associated with the bad debt as these monies have never been received.
The Income Tax Assessment Act 1997 (Cth)
(1) You can deduct a debt (or part of a debt) that you write off as bad in the income year if:
(a) It was included in your assessable income for the income year or for an earlier income year; or
(b) It is in respect of money that you lent in the ordinary course of your business of lending money.
Note: If a bad debt is in respect of a payment that is required to be made under a qualifying security (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936 ): see subsection 63(1A) of that Act.
Writing off a debt you have bought
(2) You can deduct a debt that you write off as bad in the income year if you bought the debt in the ordinary course of your business of lending money. However, you cannot deduct more than the expenditure you incurred in buying the debt.
Writing off part of a debt you have bought
(3) You can deduct a part of a debt if:
(a) You write off that part as bad in the income year; and
(b) You bought the debt in the ordinary course of your business of lending money.
(4) However, the maximum that you can deduct under subsection (3) for one or more income years is the amount (if any) by which:
- The expenditure you incurred in buying the debt;
- So much of the debt as has not yet been written off as bad.
Please Note: This article does not constitute legal or financial advice. You should seek your own independent advice from a qualified person.
Important Note: Bad debts will only need to be written-off if you report debts on an accrual basis. If you recognise income in your accounting system only when it's banked into your business account you will not have any adjustments to make as the income has not been recorded.
Approximately 50% of Australian SME's (small and medium enterprises) are owed more than $10,000 in unpaid invoices for goods and services provided with over 63% of those surveyed indicating that they wait more than 90 days before referring debts to a debt collection agency.
Stacey Price, founder of Healthy Business Finances, said, "I think people feel guilty chasing money, even if they've done the work. I think the big thing is that people just assume that people will pay, then they don't chase it until's 30 days beyond the deadline. You're already looking at 60 days before they make contact".
Noted in a prior blog article, the Australian Small Business and Family Enterprise ("ABSFEO") launched their own inquiry with preliminary results indicating that 40% of Australian businesses spend between 2 to 5 hours a week chasing money which is owed to them. They estimate that 2 out of 3 businesses are owned at least $10,000 while 1 in 10 have reported debts owing between $100,000 and $500,000.
Ombudsman Kate Carnell from ABSFEO anticipates that the final report, The Payment Times and Practices Inquiry, will be handed down in the coming weeks and we will be sure to provide an update.
Ipso facto clauses allow one party to a Contract or Agreement to terminate or vary a Contract typically upon an insolvency event, such as the appointment of a company administrator. This is regardless of continued and historical performance under the contract - ie payments are still being made with no amounts outstanding for payment.
The operation of these clauses diminishes the value of a business when an insolvency event occurs and may reduce the scope for a successful restructure or prevent the sale of the business as a going concern, with consequential impact on the returns to Creditors in any subsequent liquidation. This was particularly the case with the collapse of One.Tel in May 2001 where once ispo facto clauses were invoked, services were unable to be provided.
The lack of protection from the operation of ipso facto clauses has been a key criticism of the voluntary administration regime contained in Part 5.3A of the Corporations Act 2001.
In the 2015 report on Business Set-Up, Transfer and Closure, the Productivity Commission recommended that the Corporations Act 2001 be amended such that ipso facto clauses that have the purpose of allowing termination of Contracts solely due to an insolvency event are unenforceable if the company is in voluntary administration or in the process of forming a scheme of arrangement with Creditors.
For reasons of practicality the Government considers that this approach should be extended to include other types of ipso facto clauses (such as clauses that vary terms of a Contract) which may be disproportionately detrimental to companies undertaking a restructure.
If the recommendations made are implemented later this year there will be a requirement for adequate safeguards to ensure that they are not abused and to protect Creditors however the adoption of the recommendations would provide a more balanced approach for a company that is undergoing financial distress and lead to a better result for all parties.
Recent data from a UK based finance company, MarketInvoice, shows that Australian businesses, especially larger corporations and Government departments, are the worst in the world when it comes to paying invoices in a timely manner.
The report, which you can read here, shows that, on average in Australia, it takes 26.4 days for an invoice to be paid. In direct comparison the Japanese are renowned for paying on time and, on average, pay an invoice 6.5 days prior to the due date.
The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, said in an interview with ABC 702 Breakfast, "[T]hose are the companies that they’ve got a capacity to pay quicker. And yes, they’re doing it because they can, they’re using small business people fundamentally as banks I suppose – very cheap banks – and we just think that’s not acceptable; it's impacting upon on our economy, so we’ve launched today an inquiry into this."
By sector, banks were the the best payers, typically settling their accounts 1 day past the due date with supermarkets and eCommerce merchants paying 7 days after the due date. High-street retailers typically settled their accounts 2 weeks past the due date.
The inquiry, The Payment Times and Practices Inquiry, launched by Australian Small Business and Family Enterprise Ombudsman, aims to possibly introduce regulations that will punish larger organisations that are late paying small business.
You can provide feedback to the Australian Small Business and Family Enterprise Ombudsman via their website.
We will continue to monitor the progress of the inquiry and provide updates as they become available.
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