In order to maintain any sort of leverage when a business extends credit to their clients, there must be a set of rules. These rules are simply applied if there is an issue or dispute when one of their clients fail to meet their financial obligations. They are what is known as your Terms and Conditions.
It’s one thing to have a set of rules, but if there isn’t any consequence in the enforcement of those rules, very little changes. That’s why including the appropriate legislation into your Terms and Conditions is vitally important. These include the ability to on-charge collection costs and penalty interest, a Privacy Waiver allowing you to market a debtors credit file, and of course the appropriate PPSA Legislation allowing for a legally binding, valid PPSR.
Since the introduction of the PPSA Legislation, you are either a Secured Creditor, or you are not. Unfortunately, if a business hasn’t registered on the PPSR and one of the businesses clients file for Liquidation, as an Unsecured Creditor the business leaves itself open to Preferential Payment Clawback.
Preferential Payment Clawback occurs when there is a shortfall between the liquidated assets of a business, and the amount of money owed to Secured Creditors. Essentially the liquidator now has the legal right to demand the return of any money paid to an Unsecured in the previous 6 months to the date of liquidation.
Being a Secured Creditor protects your business and avoids being subject to Preferential Payment Clawback. Remembering Preferential Payment Clawback is designed to ensure secured creditors get paid especially when a business files for liquidation.
Another clear advantage to having up to date Terms and Conditions is the flexibility and leverage it gives a business’s accounts staff when chasing unpaid or delinquent debtors.
It makes a lot more sense being A Secured Creditor when deciding to instigate winding-up orders on a delinquent debtor. As a Secured Creditor, a business is in the best position to ensure they get paid during the liquidation process. As a Secured Creditor, you have the legal right to appoint a receiver as you hold a security interest in the debtor's company assets. The only way to appoint a receiver as an unsecured creditor is to take the debtor to court and ask a judge for a Court Order. This is rarely done as most unsecured creditors are last on any list of creditors.
Having Up To Date Terms and Conditions is the Cornerstone to any effective business credit management strategy. As previously stated without a set of rules with inbuilt consequences a businesses options become limited rather quickly with court being one of the few options available.
Most business usually use the back of their clients’ invoices or statements to update their Terms and Conditions. However, it is worth noting that to register a legally binding valid PPSA Registration a business is required to ensure that they have a signed agreement between itself and its clients. This is usually done using a Credit Application, Client Information, Quotation, or other forms of agreement. This and not having the appropriate legislation included in a business Terms and Conditions has been the leading contributor to invalid PPSA Registrations in the past.
Registering a Security Interest is paramount to obtaining a valid security interest. At a cost of $6 for 7 years, it’s the best insurance a business can buy.
If you like to know more about "How You Can Leverage Your Client Into Paying You On Time" please feel free to request our FREE Facts Sheet here.Until Next Time, Have a Great Day
With over 35 years’ experience Collection Consultancy Australia prides itself in offering Products and Services designed to Protect Business Assets and Cashflow. Quite often the process can start from simply making business owners aware that there is option available, through to business specific solutions and education. We are here to let business owners know that there can be a better way to secure their financial future.
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