Transforming your accounts receivable process for a post-pandemic future

Transforming your accounts receivable process for a post-pandemic future

How we do business has changed. Physical distance from co-workers and customers has transformed how we communicate and connect. Supply chains once buoyed by cash flowing through them are hurting. Your accounts receivable process, which counts on both communication and cash flow, has probably been tested in a COVID-19 world.

The question is, did it pass? And how will you transform your accounts receivable (AR) process for now and a post-pandemic future?

Here are some of the pivot points every accounts receivable manager needs to know and the next steps to take in the current B2B environment.

Key points

  • Eliminate the mess and confusion with centralised accounts receivable data and task management.
  • Lower the time and financial costs of your accounts receivable process and invest in better customer care.
  • Listen to your customers and offer solutions to their cash flow constraints.
  • Actively protect your business from bad debt risks and lower your credit risk exposure.


1. Neither you or your customers want higher costs right now


What accounts receivable managers need to know:

Your high costs of accounts receivable management can be directly attributed to the cost of doing labour-intensive manual tasks. Accounts receivable tasks such as sending email reminders, preparing monthly statements and sifting through spreadsheets are eating up time your staff could be investing in other revenue-generating activities. Unsuccessful collection attempts due to a leaky process have a zero return on investment.

That’s just your story. What about your customers? They don’t want to be wasting their labour on dealing with your complicated order-to-payment process. They’ll simply move on to the supplier that’s easy to deal with.


Next steps to consider:


Automated accounts receivable solutions like ezyCollect do the groundwork for you: identifying when invoices become overdue, funneling invoices into a reminder schedule, taking care of your monthly statement run, accepting payments online and even thanking your customers for payment. 

With the routine tasks running in the background, your team has more time to further reduce accounts receivable costs. Spend more time analysing your books for the debts at risk of being written-off; pick up the phone and save those unrealised sales before they slip into the land of the lost.

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2. Your office loss slows down an already time-consuming process

What accounts receivable managers need to know:


An accounts team working remotely is separated from each other and their usual work practices. It is now harder to share tasks and get visibility on day-by-day accounts receivable task management. Who is making the collection calls today? What did the customer promise to pay? How will you accept customer payments over the phone when you’re not in the office? 

Next steps to consider:

Just as your sales team is using your ERP or CRM solution to track the sales funnel, your accounts receivable team can keep close tabs on the payments funnel with a cloud-based debtor CRM.

To avoid the mess of spreadsheets and silos of information, your team can work from anywhere and check in with one shared accounts receivable data source. It eliminates confusion as it is the single source of truth for all overdues, customer communications, promises to pay, payment history, and tasks that are due.

3. Your customers are impacted and you need to respond


What accounts receivable managers need to know:


Of course you should be concerned with your own cash flow. But now is the time to also express empathy and be your collaborative best with the rest of your supply chain. ‘We’re all in this together’, right? As your customers come under financial pressure, will you keep communicating as if nothing has happened, or will you shift your message and tone to directly address their current cash flow crisis? Will you be the thorn in their side demanding payment or the guide who helps them to continue to trade with you?

Next steps to consider:


Businesses that emerge from COVID-19 with their customers intact will recover faster. You may now need to consider accepting part payments, offering buy now pay later, or accepting credit card payments as your customers look for responsible ways to extend their line of credit. If your customers want to continue to trade with you but need more options, how can your accounts service adapt to support your customer service?


4. Will new customers be more trouble than they’re worth?

What accounts receivable managers need to know:


A new customer who never pays you is literally more trouble than they’re worth. While it’s tempting to get more customers onto your books, if their cash doesn’t follow, it’s a useless exercise. Trade references have their place but they are time consuming and often biased. Your prospective customers arrive with an audit trail of past credit events and current credit activity.

Do you have eyes on every customer’s credit behaviour?

Next steps to consider:


Add a step in your customer onboarding process to thoroughly assess a prospective customer’s credit rating before you issue a cent of credit. For minimal effort and as little as $5, you can get a basic credit report from ezyCollect’s Credit Insights service.

With your credit risk assessments done, adjust your payment terms to minimise your credit risk exposure. Some customers should be on cash on delivery terms. For good payers, you could consider extending more credit to foster more business.

You can even go deeper with day-by-day analysis of how promptly your customers are paying you and others. For example, ezyCollect’s automated credit insights service will track every customer’s payment time and send you risk management considerations.

5. Buyers spend differently now


What accounts receivable managers need to know:


Supply and demand has changed. The multi-billion dollar uptake in the JobKeeper and cash flow boost payments from the Australian Government proves that business revenue has taken a sizeable hit. However, not everyone is in the negative. Some of your customers will be innovating, even thriving. How is your team quickly adapting to the fluctuating volume of invoices and payment reminders per customer? Can you track who has got money to spend and are you actively nurturing them for more business?

Next steps to consider:


Solidify valuable relationships by talking to customers and asking them how they are adapting their business now and for the future. Ask them what would make their payables experience with you better, then tell them how you intend to break down the barriers to paying you. Solving your busy customers’ problems makes you a valued supplier. Your permanent improvements will keep customers returning to do business with you.

6. Buyers pay differently now


What accounts receivable managers need to know:

In the April-June 2020 business quarter, the economic impact of the COVID-19 pandemic began to emerge. At ezyCollect we saw an interesting pattern in payment behaviour: an uptake in credit card payments and an increase in after-hours online payments. One in five payments were closed after normal business hours.

Do your payment methods support your customers to pay when and how they can? 

Next steps to consider:


To never miss a payment, you have to think digital. Every aspect of how we communicate, connect and transact each day has moved online. Have your payment methods followed? Have you adapted your payment methods to give your customers cashless convenience, access to credit, and the flexibility to pay you even if your business is closed for the day?

Get a free online payment portal for your customers

In summary


Working conditions and the market have changed rapidly. The Coronavirus pandemic isn’t over and even when it is, its legacy will remain. Both you and your customers are already adapting to a forced new reality.  It may not be easy or even desirable to go back to the way things were.

In fact, accounts receivable managers who fought the tidal wave of uncertainty with robust cash recovery processes, careful and consistent communications with customers and insightful risk management will not want to go backwards. It’s onwards and upwards from here.

For more ideas on how to transform your accounts receivable process, ezyCollect offers no-obligation daily product tours.

Days Sales Outstanding (DSO) and how to halve it

Days Sales Outstanding (DSO) and how to halve it

Days Sales Outstanding, or DSO, is the average number of days for a business to collect a cash payment from a credit sale. When a business sells on credit, it gives its customers permission to pay in cash at a later date. The average time to pay for a given period is the days sales outstanding.

The days in sales outstanding impacts cashflow. For example, a high DSO means a business has taken a long time to convert its accounts receivable to cash. Cashflow-conscious businesses will strive to reduce DSO. A lower DSO means cash returns to the business faster.

Key points

  • Days Sales Outstanding is common accounts receivable term often referred to as DSO.

  • DSO is the average number of days for a business to convert a credit sale to cash in the bank.

  • The days sales outstanding formula is (Average Account Receivable / Total Credit Sales) x Number of days.

  • You can lower DSO to achieve better cash inflow with strict credit control and a disciplined accounts receivable process.

What is the days sales outstanding formula?

The days sales outstanding formula is easy to run. It’s a measure of how quickly cash was recovered from outstanding sales invoices. Sales revenue may be a combination of cash sales and credit sales. Only credit sales (accounts receivable) are considered in the DSO formula. That’s because cash sales are not counted as outstanding. DSO is typically measured month-by-month.

DSO = (Average Account Receivable / Total Credit Sales) x Number of days

You can see that if a business retains a high proportion in accounts receivable at the end of one month, its DSO will be high. It has not converted its credit sales into cash quickly and that money is not available to run the business.

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A days sales outstanding example

Here’s how we arrive at a DSO calculation of 40 days for ABC Wholesale Company:

  1. We decide to calculate the DSO for the month of June, which has 30 days.

  2. On 1 June there was $105,000 in accounts receivable.

  3. On 30 June there was $95,000,00 in accounts receivable.

  4. We calculate the average value in accounts receivable for June was $100,000 (the average of $105,000 and $95,000).

  5. In June, ABC Wholesale Company recorded $75,000 in total credit sales.

  6. DSO = (100,000 / 75,000) x 30 days = 40 days

ABC Wholesale Company takes 40 days on average to collect a credit sale. 

Even without the calculation we can quickly understand that ABC Wholesale Company is accruing more debt in relation to its credit sales for the month.

Imagine ABC Wholesale Company’s cash position if it halved its DSO to 20 days?

How to halve days sales outstanding

To halve its calculation of DSO to 20 days, ABC Wholesale Company can effect change upon two  variables in the formula. Most simply, it could:

  1. Halve the average accounts receivable, or

  2. Double the total credit sales.

Let’s see what happens when the business halves its average accounts receivable by collecting twice as much:

DSO = (50,000 /75,000) x 30 days = 20 days

Or, ABC Wholesale Company could also halve its DSO if it doubled its credit sales:

DSO = (100,000/150,000) x 30 days = 20 days

Doubling sales is a big ask! While it’s always great to double sales, that doesn’t equate to an improvement in the accounts receivable department’s collection efficiency. And collecting payments faster is ultimately the goal of lowering DSO.

The good news is that halving accounts receivable is achievable with strict credit controls and a disciplined accounts receivable process. 

What is a high DSO?

‘High’ and ‘low’ days sales outstanding ratios are best considered in a wider context:

  • Industry: Some industries are much slower to pay than others.

  • Trends: Seasonal businesses experience highs and lows in their collections and sales, so compare DSO over comparable periods to determine acceptable highs and lows.

  • Business size: A DSO of 60 days may be ‘good’ for a large business but crippling to cashflow for a small business.

  • DSO can mask a bigger picture. We cover more considerations in our blog post on accounts receivable turnover ratio.

Why does a low DSO matter?

DSO is one measure of the liquidity of a company: how much access it has to cash to operate day-to-day. Small to medium-sized businesses rely on cash to pay their people, re-stock, and upgrade their systems. Lowering the days sales outstanding means that the cash conversion cycle is faster. There is more cash returning to the business each month, and that cash is available to fund business operations.

Without good cash recovery, it is harder to fund the activities that support an increase in sales.

What’s more, investors and creditors want to know that a business is effective in managing its debts. Cashflow is a critical indicator of a business’s health and financial outlook.

How to improve days sales outstanding

Days sales outstanding is not all about numbers! A big influence on payment times is your debtor communications and relationships.

It’s a fact we prove over and over at ezyCollect: debtor relationships matter!

You can improve (lower) your days sales outstanding by improving your service offer to debtors. Once your accounts receivable process becomes easier for you and your debtors, payment times improve.

Here are five simple tips:

1.  Understand every new debtor’s likelihood to pay on time BEFORE you issue credit. This way, you are not exposing your business to known late payers and are offering your credit to buyers who are likely to pay on time.

2.  Digitise your invoicing and payment chasing. These are both inevitable activities if you offer trade credit so automate your accounts receivable tasks for speed and accuracy and get those collection communications to your customers on time, every time.

3.  Use collection calls and SMS reminders to connect with debtors.  When emails aren’t enough, your workflow needs to accommodate a timely and effective collection call and an SMS payment reminder to cut through the noise.

4. Offer your customers payment convenience. Pay later, pay with credit card, pay online. This is what business customers want and if you’re not offering these payment methods, just know that someone else is. Guess who gets paid first?

5. Say thank you for paying. This simple gesture is so powerful and yet often under-estimated. If you could be the business that simply says ‘thanks”why wouldn’t you? You can even personalise and automate your message to make sure you never miss an opportunity to reinforce positive payment behaviour.

In summary:

An increasing DSO indicates that debtors are taking longer to pay their invoices. Long and late payment times limit a business’ access to vital cashflow to survive and thrive. Cashflow can improve when DSO is reduced and the cash conversion cycle speeds up.

To solve DSO issues, a business can improve its credit risk management and collections efficiency.

ezyCollect is purpose-built to reduce Days Sales Outstanding

ABM + ezyCollect: Ajendico’s 3-step plan for accounts receivable efficiency

ABM + ezyCollect: Ajendico’s 3-step plan for accounts receivable efficiency

Di Peters, Ajendico

Di Peters is the Managing Director at Ajendico Pty Ltd, Australia’s leading Advanced Business Manager (ABM) Software Channel Partner.

Di has been helping small & medium business owners for the past 27 years. As an ERP advisor, she specialises in optimising and systemising increasingly complex business processes. “Even successful businesses encounter problems. With the right technology, you can transform a problem area into a long-term asset,” says Di. Cashflow-generating functions should be optimised, making accounts receivable efficiency a prime target.

Key points

  • The right technology can create lasting improvements to your business processes.

  • Cash recovery is a common pain point across many industries.

  • Ajendico integrated ezyCollect with ABM to extend their accounts receivable efficiency and capabilities.

  • An automated and organised accounts receivable process saves time and speeds up the cash recovery rate.

Trial ezyCollect + ABM free for 14 days

Di uses a simple 3-step process to help business owners identify areas for business improvement:

Step one: Uncover the pain points

First, identify the processes that are not working for your business. Look for areas where you are putting in the time and effort but not getting results. Which pieces of information are you missing but really need in order to make good decisions? Where are you wasting resources and raw materials? 

The pain points in your business can cause headaches for you and your team. Even worse, they could also be affecting your customers. 

Step two: Assess your current capabilities

Deep dive into your current systems to make sure you are utilizing them to their full capacity. Identify where your current systems do not meet your evolving needs. Consider your people and the job they need to get done. This will help you to create the scope for the solution that will extend your team’s capabilities. 

Step three: Find the best technology 

The key to sustainable improvements is to implement the best technology available. Assess a technology solution for the following:

  • the feature set
  • usability and user interface
  • cost and return on investment
  • customer support provided
  • ease of integration with your existing systems

Read user reviews. Ask your ERP advisor to recommend applications that are best of breed.

Pain point: Cash recovery 

“The biggest roadblock in growing any successful business is cashflow. If our  clients can’t get dollars back in their bank account it impacts their working capital and growth,” advises Di.

And Ajendico’s clients—including manufacturers, e-commerce businesses and importers—want to be market leaders.  

“Our team can add value to these ambitious businesses by helping them to get paid first.”

Current accounts receivable capability: Advanced Business Manager

At its core, ABM is logical and easy to use. The ABM Core Accounting System is designed to fulfill the needs of modern businesses, and once implemented, quickly streamlines business processes.

Di’s clients use the automated credit control functionality in the core ABM system to keep control of customer credit limits. It’s easy to see outstanding debts by invoice due date as well as send an email reminder to overdue customers after the due date has passed.

Whilst the day-to-day processes work well, Di identifies an opportunity for time-poor businesses that end up with too many overdue invoices each month.

“These businesses need a cost-effective plan in place to follow up customers who don’t respond to existing internal processes.”

Four key accounts receivable improvements with ezyCollect

The integration of ABM and ezyCollect takes a previously manual process to “another level”, says Di.

1. Get paid early with a due soon reminder

Once the invoice is entered in ABM and the due date is known, you can start automating a schedule of reminders starting before the payment due date.

“This first improvement means less work chasing overdue accounts as your new system improves the percentage of invoices paid on or before the due date,” says Di.

2. Save time with an automated and escalating workflow 

If your customer has not paid the invoice, instead of sending just one overdue invoice email from ABM, ezyCollect provides you with a schedule of scripted collection tasks that include emails and phone calls. Your workflow can also include the final step of handing the debt over to a collection agency, a step that always remains in your control.

A strict workflow results in disciplined cash recovery

3. Be easy to pay online

Di also recommends the online payment capability of ezyCollect to her clients.

“Your reminder and invoice can include a Pay Now button, making it simpler for your client to pay you with their credit card as soon as the email is received. And your business now looks far more professional to your customers,” advises Di.

4. Generate more business with Pay Later

Going further, ezyCollect offers your customers an additional payment method: Pay Later.

“Within their payment portal, your customers can take up a payment plan with a finance provider. It means you get paid today while your customer pays back the amount they owe in instalments.”

The Pay Later function is good for your own cashflow, and it also helps your credit-worthy buyers to regulate their own cashflow.

Is ezyCollect right for your ABM-run business?

Di understands that users of ABM like how customisable it is. “Tailoring ABM to suit their internal business processes gives them a competitive advantage,” says Di.

To see if ezyCollect could benefit your business, Di recommends this:

  1. Run your Trade Debtors report and write down the Total Due

  2. Now write down the Total of the Current column underneath

  3. Deduct the Current column from the Total Due

This is the amount of money that could potentially be in your bank account right now.

Are you missing out?

Di’s final word:

Every business can benefit from extra cash in the bank. Making your accounts receivable process more efficient has tangible benefits to your business  like time savings and working capital you can rely on. What’s more, you also give your customers a better payments experience which supports your relationships. 

ABM users can trial ezyCollect free for 14 days:

How to ask customers to pay their outstanding balance during COVID-19 (+ email template to get paid now)

How to ask customers to pay their outstanding balance during COVID-19 (+ email template to get paid now)

COVID-19 has changed trade as we know it, perhaps forever. What hasn’t changed is your need to get paid on time. However, it’s the suppliers who engage in connected and empathetic communication with their customers now who will reap long-term rewards.

And it’s not just about recovering cash, says Amanda Lee. Amanda is an overdue accounts receivable specialist at The Retriever and has more than 15 years’ experience helping businesses turn late payers into highly profitable, return customers who pay on time.

“For businesses to recover from these extreme times, they will need their customer relationships intact and lines of communication open. The goal is always to collect the outstanding balance and retain a happy customer,” says Amanda.

“If you don’t retain your customers through COVID-19, you may not survive this pandemic, so it’s vital that you’re talking to them.”

Amanda Lee

Key points:

Here is Amanda’s advice on how to ask customers to pay their outstanding balances:

1. First check that you’ve delivered. If you’ve done great work, always expect to be paid!

2. Acknowledge that times have changed. Express your understanding and solidarity with your customers in a genuine manner. We are all in this together.

3. Focus on people. Put people and the relationship first and the money will follow.

4. Invite a conversation. Ask your customers to communicate with you and be available to take their call.

5. Be upfront about the outstanding balance. Remind your customer about the full amount owing. Be straightforward and polite—it’s okay to ask!

6. Remind customers of stimulus available: Eligible businesses will be able to access government cashflow boosts and other stimulus measures to pay their bills. Ask them if they have applied for these incentives.

7. Negotiate for a win:win. A payment plan can help retain a customer whose cashflow is constrained. Reducing credit terms can also reduce your credit risk if you continue supply.

8. Keep communicating. A series of reminders works. Make sure they continue to be helpful and map a way closer to payment. Always ensure your communications are encouraging a connected relationship.

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A 4-step plan (+ outstanding balance email template)

Step 1. First, deliver great work

If your customer has any disputes about their outstanding balance, your reminder communications will not be effective. The first step is to address any disputes immediately, hear the customer’s grievance and accept any responsibility so a resolution is immediate. Then agree on the amount to be paid.
Step 2. Send a reminder that is simple, polite, empathetic and invites a conversation. 

Personalise and customise Amanda’s email template to collect an outstanding balance:

Subject: Your Account and COVID-19 -How Do We Help?


Hi {Name},

How are you? I hope my email finds you well.

We are trading in unusual and interesting times that are impacting us all in similar ways. We want to communicate with you regularly to stay abreast of any issues you may be facing.

I want to discuss your account that has an overdue balance totalling {$0,000.00}. If you’re experiencing financial difficulties or waiting for government assistance, such as JobKeeper, which may delay your payment of the account, please call me on {0000 000 000} so we can discuss an amicable and workable solution to get through the next few weeks. This will assist us in managing our cash flow as well.

It’s vital that we work together through this extreme event and continue to support each other; communication is key. It is important to us that our customers are okay, and we’re committed to doing what we can to support you whilst maintaining our own operations.

I appreciate you giving this your attention and I look forward to your payment or communication.

Take care and enjoy your week.

Attachment: {Account Statement}




{Landline | Mobile | Email}

Friendly reminder email template about outstanding balance

So what does this template get right?

It’s personal—note that it is addressed to a person and not signed off from a generic name like ‘accounts’. The tone is open and friendly. There are lots of ‘I’ and ‘we’ statements that remind the customer of your shared relationship.

It’s timely—the email references current times and sets the scene for communication over the coming weeks.

It’s offering support—support to work together, support for each other’s cashflow, and it expresses genuine concern and interest in how the customer is faring.

It’s actionable—the customer has enough information to understand your point of view and also has a clear and open invitation to return the communication.

Step 3. Follow-up

You’ve invited a conversation, now allow your customer time to respond. Your customers may be working differently and their response times may be longer. Alternatively, your customers may now have more time for an in-depth conversation.

Either way, be prepared to follow-up. Test out different communication channels. You may find that a text message gets answered more quickly. This letter (above) gives you a point of reference to refer back to in your future communication.

Remain persistent and consistent in your follow-ups. Now is the time to stay on your customer’s radar and keep collecting. As stimulus payments flow through the supply chain from May to September, use this time to position your business as a preferred supplier at the head of the payments queue.

Step 4. Make permanent changes to your accounts receivable process

At ezyCollect, we have seen a rise in financial controllers and credit managers eager to use this time to make permanent improvements to their accounts receivable process and efficiency. The COVID-19 pandemic has opened everyone’s eyes to new and improved ways of working and relating to their customers.

What’s more, business operators are more aware than ever before of the critical role that accounts receivable plays in the cash flow cycle. Businesses that have cash locked away in unpaid invoices are now acutely aware of the deficit in their working capital. You cannot maintain a status quo of carrying significant overdue accounts if you want to remain in business in the near future.

In summary

Keep up, in fact, ramp up, your collection efforts during COVID-19, especially while government- assisted cash is flowing through the supply chain. Excellent communication is always key to getting paid on time and maintaining respectful customer relationships. Tailor your communications to empathise with current times. Open the lines of communication. Negotiate payment plans that support cash flow and the trade relationships you want to maintain. Customer retention is vital.

It’s crucial to make permanent improvements to your collections efficiency so you maintain a healthy cashflow buffer to fund the tough times and your plans for growth. COVID-19 has taught us all that anything can happen and we have to prepare ourselves for a new future.

To learn more about our accounts receivable solutions and how you can optimise your collections, watch a free demo below.

New debt collection laws: How they affect your business

New debt collection laws: How they affect your business

Under temporary new Australian laws relating to corporate debt collection, creditors still have the right to enforce debts through the courts but the thresholds have changed. In response to the economic fallout from the coronavirus pandemic, the new laws will remain in place for the next six months, with the option to extend to a year.

Key points:

As of 23 March 2020, amendments to the Corporations Act 2001 (Cth) and the Bankruptcy Act 1996 (Cth) allow the following temporary relief for companies in financial distress:

  • The statutory minimum debt is increased from $2,000 to $20,000.

  • The statutory period to comply with a statutory demand is extended from 21 days to six months.

  • Safe harbor for company directors from any personal liability for trading while insolvent.

  • The minimum amount of debt required for a creditor to initiate bankruptcy proceedings is increased from $5,000 to $20,000.

Creditors can still pursue unpaid invoices

Creditors can still pursue pre-legal collections as before. In fact, a business’ internal accounts receivable process should be more robust than ever in these uncertain times. Now is the time for a business to review its credit policies and the credit terms it extends to customers. In another article, we’ll cover options for businesses when your customers stop paying their invoices during the COVID-19 pandemic. In the meantime, you can register for our upcoming webinar:


Date: Wednesday 15 April 2020
Time: 11.30 a.m. to 12.30 p.m. AEST
How to join: Via Zoom

What are statutory debts and statutory demands?

A debt is considered statutory if it is due and payable to a creditor and is claimed by the creditor under a statutory demand. The debt cannot be prospective, contingent or unliquidated.

Due to the Australian Government’s Coronavirus Economic Response, the statutory minimum debt is now $20,000. 

The revised statutory minimum debt of $20,000 only applies to statutory demands that are served on or after the commencement of the temporary changes and only while the temporary laws are in place.

Under the Corporations Act,  a statutory demand must be in writing and in the correct form: Form 509H.

A Form 509H is a written demand for payment sent by or on behalf of the creditor to the debtor company. It must include relevant information and be delivered according to the requirements of the Corporations Act. This is because the Courts can order a company into liquidation if it does not meet the statutory demand, so the Courts must be satisfied that the initial statutory demand was lawful.

A single statutory demand can include the total debts owed to the creditor and how the debts were incurred by the debtor company.

Among other criteria, the statutory demand must ensure the following:

  • is in writing;

  • be signed by on behalf of the creditor;

  • state the total amount of debt due and payable on the date of the demand;

  • includes the debtor’s company name and its registered office. 

  • includes an Australian location where the debtor company can pay the debt e.g. the creditor’s office or a solicitor’s premises. 

  • must be supported with a judgment of the Court or an affidavit

  • is left at or posted (not emailed) to the debtor company’s registered office or a copy delivered personally to a company director who resides in an Australian territory. 

Due to the compliance requirements, a creditor company will usually ask a solicitor to prepare and issue a statutory demand on its behalf.

Responding to a statutory demand

Time is critical for a debtor company once it has been served with a statutory demand. 

The statutory period to comply has changed due to the Australian Government’s Coronavirus Economic Response.

From 23 March 2020, the statutory period to comply with a demand is extended from 21 days to six months.

A debtor company may choose a number of actions after receiving a statutory demand:

  • Pay the creditor the amount in demand.

  • Seek to set aside a statutory demand that is accompanied by an affidavit.

  • Seek to set aside a statutory demand with a judgment.

A debtor company that seeks to set aside the statutory demand must be able to provide the Court with satisfactory evidence that there is a genuine dispute, they have an offsetting claim, the demand has formal defects, or there is another valid reason.

If a statutory demand is set aside by the Courts, there is no further legal effect of the demand and the Court may issue costs against the issuing creditor.

What is safe harbour from insolvent trading?

When a company has no capacity to pay back its debts when they are due, company directors have a personal responsibility to enter an insolvency procedure such as voluntary administration or liquidation.

The new temporary laws allow company directors to knowingly continue trading and incur debt even if the business is unable to pay its debts when they are due. Any debts incurred by the company will still be payable, once economic conditions improve. 

The new laws are intended to support businesses to continue to trade with purpose where possible through the Coronavirus crisis with the aim of returning to viability afterward. Directors are not relieved of their fiduciary, care and diligence responsibilities and must take care to fully  understand their director responsibilities before, during and after the Coronavirus pandemic. Companies that undertake dishonest or fraudulent practices will still be subject to criminal penalties. 

An increase to bankruptcy thresholds

Bankruptcy refers to personal, not company, insolvency. Under temporary changes to the Bankruptcy Act 1996 (Cth),  the creditor can initiate bankruptcy proceedings against a debtor when the minimum amount of debt is $20,000. 

A debtor now has six months (up from 21 days) to respond to a bankruptcy notice filed against them. Creditors retain the right to enforce debts against companies or individuals through the courts.

Planning for the future

The breathing space offered by the temporary relief measures is designed by the Australian Government to allow businesses more time to consider their recovery plans after the Coronavirus crisis. The government hopes that the safety net of extra time and lessening the threat of court actions will support otherwise viable businesses to resume normal business  operations instead of pushing them to insolvency.

Useful resources:

Read Treasury’s Fact Sheet: Temporary relief for financially distressed businesses

Read the ATO’s advice: Boosting cash flow for employers

Throughout the Coronavirus pandemic, ezyCollect is offering new users 2 months free use of the entire accounts receivable platform to help businesses recover outstanding invoices and mitigate credit risks.