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In anticipation of a significant increase in the number of small businesses being put into external administration following the end or temporary measures extended until 31st December, the Australian Government has today announced major changes to come into effect 1st January 2020.
The reforms will allow businesses with liabilities of less than $1 million to restructure their debt, similar to the Chapter 11 bankruptcy model in the United States.
The previous “creditor in possession” model will be replaced with the “debtor in possession” model, where businesses can restructure their debts without giving up control to appointed administrators.
Click here to read the Aust Govt. Fact Sheet released today.
Credit risk management is important in good times, in slow and uncertain times with less protection it is even more critical for businesses.
Businesses need to consider:
Credit risk management is all about good processes, systems, and data. But it does not need to be difficult, or time-consuming. To see how you can implement an effective system by COB today watch the demo.
After what has already been a torrid year for Australia with bushfires and Covid 19, October 2020 looms with:
Make it easier for your customers to buy, and more importantly for your customers to pay, with ezyCollect’s Pay by Instalments, available now.
We all know that no matter what we go through, the economy always bounces back. It’s a matter of staying afloat during the storm, and then capitalising on the recovery.
We’ve seen the success of companies such as Sydney’s Afterpay, with a current market value of $21 billion (as at 14/9/2020) after only 6 years. People will still buy, if it’s easy for them to buy.
Your customers do still want to buy from you, and indeed need to keep buying from you to keep their business turning. It’s about making it as easy as possible for them to buy, especially in difficult times. And where they have choices in suppliers, they will obviously turn to the supplier who makes it easiest.
It’s about helping your customers through the tough times, whilst ensuring your own business does not suffer. And history shows us time and time again, that companies who survive the tough times, generally do very well when the market recovers.
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.
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.
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.
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?
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.
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?
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?
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?
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.
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?
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.
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?
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?
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.
The Australian economy is currently experiencing its biggest economic contraction since the
1930s. Australia’s triple A credit rating is intact but on a negative slope, according to credit rating agency, S&P Global. In June, the Reserve Bank of Australia (RBA) confirmed there is considerable uncertainty about when the economy will recover.
What is certain is that the financial contagion of the Coronavirus pandemic has hit every industry. The Organisation for Economic Co-operation and Development (OECD) report that some industries like arts and tourism are in full shutdown. Meanwhile, others such as construction and professional services have declined by half.
Economic inactivity puts a huge question mark around a business’ ability to repay its debts. That means that previously creditworthy businesses may now be bad debt risks; prompt payers may quietly start to withhold payments.
Does your company know which customers have a deteriorating credit rating?
A credit rating or a credit score is an indicator of a business entity’s likelihood to meet its financial obligations. A credit reporting bureau like illion analyses dozens of credit rating variables including an entity’s credit history, publicly available financial and organisational information and even court actions to determine its creditworthiness and financial stability.
To arrive at an overall credit appraisal for an entity, illion for example, will assess the likelihood that the entity will experience severe financial distress or failure in the coming 12 months, as well as its risk of paying severely late.
Credit monitoring is a risk mitigation service provided by credit reporting bureaus. A credit
reporting bureau will collate, analyse and report on a business entity’s noteable
commercial credit activity as it trades in the marketplace. Changes in a company’s credit score can be picked up quickly by a credit monitoring service.
Many companies that offer trade credit to their customers rely on a daily credit monitoring
service. That’s because companies want to know when their customers are showing the first
signs of financial distress. Think of it as an early warning system to avoid potential bad
Above all, a company’s credit risk exposure increases as its debtors’ financial health declines.
In a stable economy, employment and growth are steady and it’s business as usual.
Businesses can be more certain about which customers need close monitoring. Depending
on its sector, a business may confidently predict the customer segment that is likely to
register the most payment defaults, bad debts, and insolvencies. That becomes the customer
segment in which they focus their credit monitoring service.
In Australia for example, illion publishes a quarterly Late Payments Analysis and Business
Expectations Survey. The slowest paying industries have been consistent for some time:
retail, mining and manufacturing often top the list. Seasonal fluctuations also generate
predictable payment trends—we see retailers paying their invoices faster after the busy
During an economic downturn, consumers and companies hang on to their cash and the entire supply chain suffers. In unprecedented times as we have seen with the COVID-19 pandemic, some businesses will quickly grind to a halt.
Therefore, during a recession, the usual payment patterns do not apply. Many more businesses become susceptible to cashflow constraints as financial pressures ripple all the way down the supply chain. Previously good payers may not pay on time. A company’s credit rating score could change more frequently than usual as trade credit activity fluctuates.
Most disturbing in a health pandemic is how quickly cashflow cliff dives and businesses can fail.
Companies in financial trouble aren’t quietly slipping away. They are registering negative
credit activity in the market. However, without credit monitoring, it’s almost impossible for a
supplier to know its customers’ bigger trade picture.
Credit reporting agencies like illion can collect and feed back credit rating data about your customers. For example, illion’s credit monitoring service can alert your business when your customer registers a change in significant credit activity:
Alerts are generally described as positive, neutral or negative events in relation to a
company’s credit rating. ezyCollect’s credit monitoring service brings these alerts straight to your dashboard.
A collection notification is typically classed as a negative event. It indicates that the
original creditor has given up trying to recover a debt and has referred it to a debt collection
For example, illion will issue a negative event alert about a business entity when it has
received instruction to collect an unpaid debt from it.
Court actions are negative events. The various courts across Australia are responsible for
providing credit reporting bureaus with data on writs or summons that have been issued to a
commercial entity in relation to an outstanding debt.
Director changes is a neutral event as it is a notification that a company officeholder has
changed. Still, it’s important for a supplier to know when their customers’ directors change.
This could be because a director may have signed a director’s guarantee that they will be
personally liable for their company’s unpaid debts. If this is the case, then the supplier would
want to know if that director moves on.
In Australia, for example, a business must keep its company officeholders’ details up to date
with the federal corporate regulator, Australian Securities and Investment Commission
(ASIC). Director changes are significant because officeholders have obligations to comply
with reporting and legal requirements.
Financial change is generally a neutral event as it indicates that a monitored company has
lodged its financials at ASIC for review.
A public filing notification is a negative event. It informs that a creditor of a business
entity has made an application to the court under the Corporations Act to wind up that entity
due to insolvency.
Status change alerts could be positive or negative as they relate to the current ASIC status
of the entity. An example of a negative alert is when ASIC confirms that an entity has moved
from ‘Registered’ to ‘ Under External Administration’. An example of a positive alert is when
ASIC confirms that an entity has moved from ‘Strike-off action’ back to ‘Registered’.
Score changes report that a company’s late payment risk and /or failure risk scores have
changed. These credit scores indicate the likelihood that a business entity will pay severely late and fail in
the next 12 months. Scores can improve, stay the same, or decline, and therefore generate a
positive, neutral or negative alert respectively.
Shareholder changes are a neutral event. ASIC notifies that a company has updated their
register of shareholders as required by law. Shareholder changes are important to know
because they indicate a change in ownership of the company which may affect employees,
suppliers and customers.
During an economic recession your customers’ typical payment behaviour can deteriorate as
trade inactivity persists. A credit monitoring service can help you to quickly identify
customers that pose a heightened credit risk to your business.
Financial controllers and credit managers typically use credit rating insights to mitigate
foreseeable bad debt risks to cashflow.
Try ezyCollect’s Credit Insights for 2 months free including 3 free credit score checks each month.
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.
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:
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:
WEBINAR: WHAT ARE YOUR OPTIONS IF YOUR CUSTOMERS STOP PAYING THEIR INVOICES?
Date: Wednesday 15 April 2020
Time: 11.30 a.m. to 12.30 p.m. AEST
How to join: Via Zoom
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:
Due to the compliance requirements, a creditor company will usually ask a solicitor to prepare and issue a statutory demand on its behalf.
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:
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.
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.
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.
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.
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.