How you can protect your Business and it’s Cashflow from the effects of the Recent Legislation Changes that will more than likely cost your business 10s if not 100’s of thousands of dollars. So today we are going to discuss,

• Changes in Legislation putting your Business at Risk,
• Protecting your Business in today’s economic environment,
• Benefits of becoming A Secured Creditor,
• 3 Easy Steps to Protect your Business,

Introduction of the PPSA

In 2012 the Australian Government introduced legislation called the Personal Property Securities Act or PPSA. As a result, every business in Australia now has a PPSA file. It sits alongside your credit file and allows your creditors to register a Security Interest over your Business or Goods when they extend your business credit.

Secured or Unsecured Creditor

Both you as a business who extends credit, and your creditors have the ability to become Secured Creditors when you or they extend credit by registering your security interest on the Personal Property Securities Register or PPSR.

80% of 8 000 000 Registrations are Invalid

Unfortunately, 80% of all businesses who register on the PPSR don’t realise that the legislation required that all registrations be accompanied by a Signed Written Agreement to be valid.

Having A Set of Rules

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.

Appropriate Legislation

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.    

Implementation of Terms and Conditions

For your Terms and Conditions to be valid they need to be disclosed to a debtor prior to the start of the relationship. In some cases such as the PPSR, these Terms and Conditions need to be agreed to in writing.

Protection Against Preferential Payment Clawback

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.

Getting Paid On Time

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.    

Winding Up A Debtors Business

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.

Up To Date Terms and Conditions

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.

Implementing Your Terms and Conditions

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.   

PPSA Registrations

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