New Bankruptcy laws: protecting yourself as a creditor
The Federal Government is planning to introduce legislation that will give small businesses breathing space if they find themselves on the verge of bankruptcy, allowing them to trade their way out of trouble.
Of course, this is good news for the many hundreds (potentially thousands) of small and micro businesses that will feel the pinch of the impending pandemic-related recession after coronavirus lockdowns, on the back of devastating floods and bushfires of 12 months ago.
But … there’s a flipside. There will be adverse implications for companies owed money by a business struggling financially. What happens if you are one of them?
By Michael Mekhitarian
The 'domino' effect
Being owed money not a position any small business wants to be in because it can have serious consequences. Remember that old adage: “Please pay him, so he can pay them, they can pay her … and she can pay us?”
Money makes the world go around, and if you’re not being paid by your customers on time, then before long the domino effect sets in.
When you’re a small business even being owed a few thousand dollars can be hugely problematic.
But … there’s also a bigger problem.
When you’re a micro business or an SME, you run the risk of being one of the last to be paid when the financial position of the troubled business is finalised, because the big guys, and the ‘urgent’ payments (like those owed to the ATO) are taken care of first.
Protecting your business
The good news is that you can protect yourself. And now, particularly with the economic outlook as it is, it is a pertinent time to be reviewing things like:
- Your credit checks on customers.
- The effectiveness of your accounting system in identifying unpaid debts.
- How much credit your business can realistically extend to customers over a given period.
- Your payment terms and conditions.
- Penalties for late payments.
- Discounts for early payments.
- Deposits up front.
- Initiatives for encouraging customers onto direct debit arrangements.
- Your processes for following up overdue debts.
- Insurance to cover big financial losses.
You might have many of these strategies in place and working well.
But … a word of warning.
In my experience working with many small businesses over the years, financial contracts and agreements are often not worth the paper they’re written on. They’re outdated and don’t reflect current legislation or have ‘generic’ clauses that expose your business to loopholes or legal interpretation that might not work in your favour if tested in court.
Join the FREE Webinar for more information
This is why ATB Partners is hosting a FREE webinar with Vivian Nguyen, Managing Partner of HNT Legal on 22nd October. You can register here.
Together we will explain the legislation and its implications and talk you through some practical solutions you can begin to implement before the new bankruptcy legislation comes into effect early next year.
In the meantime, use the checklist above and conduct an informal ‘audit’ of this area of your business. This way you’ll be able to identify any concerns, and you’re very welcome to bring us your questions – this is an interactive seminar and we’re here to help.
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