A big spike in bad debts
Businesses need to better manage their debtors, as a big spike in bad debt claims has been reported by the National Credit Insurance Brokers.
According to their figures, the number of claims in February this year is almost 80% higher than the previous month and 17% higher than average February claims from 2004 to 2010, including the years of the GFC.
Unfortunately, small businesses have always struggled to manage their debtors, Oxford Funding Chief Executive Officer Rob Lamer explained, especially as some feel they have no choice in who they work with, in order to grow their business and generate sales.
“They tend to post more emphasis on getting the sale than getting paid and following it up, which is the important part of the whole process. If you’re not going to get paid, don’t be in business,” he said.
Before small businesses work with a particular customer, it’s best if owners do background checks on the company for its credit worthiness, to make sure it is able to pay for your products or services in the first place, suggested Lamer.
After all, “if you’re not going to get paid, there’s no use doing work for them”, he pointed out.
You may also consider purchasing debtor insurance or debtor finance products, which are offered by most banks, Lamer advised. Instead of waiting up to 90 days to get paid by a customer, you can have access to 80% of the invoice within 24 hours.
Lamer also warned that the Australian Tax Office also seems to be taking a harder stance on businesses behind on their tax, as there has been a rise in directors penalty notices and garnishee notices.
If small businesses are struggling to meet repayments, the ATO can either issue a DPN or a garnishee notice. A DPN makes the directors of the business personally liable for the debt, while the garnishee notice involves the ATO approaching your debtors and asking them to pay the tax office directly instead of your business.