ESS Biz Tools

Issue 001 World's Worst Title for SMEs

A very unwanted title has been awarded to Australian small/medium enterprise operators with the announcement that Australian small businesses have the “largest debtors' days outstanding in the world". (Download Australian Financial Review Article)

The survey was conducted by UK-based “Market Invoice” which found that Australian businesses were being paid 26.4 days later than the traditional payment period, far later than the next latest country, Mexico with 18.6 days or South Africa with 16.5 days late.

Based on the traditional 30-day payment terms this means that Australian small businesses are being paid on an average of 56.4 days which the Australian Government Small Business Ombudsman, Kate Carnell described as the “silent killer of modern business”.

Ms Carnell said that “in Australia more and more small businesses are falling victim to the unscrupulous payment practices of some big businesses – and even government departments – that are quite frankly a drag on productivity”.

The Small Business Ombudsman’s office has indicated that “90% of small business failures are due to poor cashflow". Small businesses are owed $26 billion in unpaid invoices and the average owed for each small business at any one time is $13,200.

If you were able to deduct the “cash only businesses” from the total of small businesses than the average debtors' balance for each small business would be significantly higher than $13,200.

Chasing overdue payments causes stress and anxiety; it’s a waste of time and it fundamentally stymies growth by forcing the business to focus on surviving. rather than thriving” Ms Carnell said. “If small to medium size businesses start falling off a cliff, economic conditions in Australia will certainly follow, so it’s incumbent on big businesses and governments to follow best practice and pay their bills on time”.

Whilst the report from the Small Business Ombudsman identified that some big businesses and some government departments are slow players, many small/medium enterprises have not helped themselves by instigating a reliable debtors' management system to their businesses.

Unfortunately, in the past not much attention was given by accountants and business advisors to advising small businesses on the desirability of implementing debtors' systems that, if operated in the right manner, will assist small/medium enterprises to significantly reduced debtors' days outstanding.

An accountant or business advisor who is offering a range of Business Advisory Services will be able to assist small/medium enterprise operators to implement appropriate debtors' management systems for individual businesses.

We believe that the introduction of a debtors' management system will play a significant role in reducing debtors' days outstanding for small business operators.

For example, a business with credit sales of $1 million per annum equates to average daily credit sales of $2,739. If that business had debtors representing the “world’s worst figure” of 56.4 days this would mean that $154,520 was owed by debtors.

If, through improved management processes resulting from the establishment of a proper debtors system, debtors' days outstanding could be improved by 10 days, this would generate a cashflow benefit of $27,390.

In survey after survey over the last 15 years, small/medium enterprises have identified that there was a need for improvement in cashflow management which obviously incorporates debtors' management; one of the key components of cashflow management. Thankfully more accountants and business advisors are responding to the request for assistance expressed by small business operators in these surveys. If you commission your accountant/business advisor to conduct a Debtors' System Due Diligence Review, the main areas that your accountant advisor will concentrate on will include:

  • Procedures for “opening debtors accounts”.
  • Implementing procedures relating to appropriate “risk analysis” on the new customer before the sale is made so as to ensure that the SME is not getting someone else’s problem.
  • Issuing a “new customer letter” including “Terms of Trade Agreement” and “Retention of Title Agreement” for signature by the new customer.
  • Implementing systems to follow up the new customer to ensure that the “signed Terms of Trade Agreement” and “Retention of Title Agreement” are received back from the new customer.
  • Implementation of appropriate systems for the registration of a customer on the “Personal Property Securities Register”. Registering customers on the Personal Property Securities Register assists SMEs to be able to reject Liquidators' Preferential Payment Claims – and these are increasing all around Australia.
  • Review of debtors' monitoring procedures including the use of “digital monitoring” to improve “debtors' days outstanding”.
  • Advice on the system to be utilised to calculate “debtors' days outstanding” so that you have this key management indicator available to you, at least, once a month.
  • Another important tool for your debtors' clerk to utilise is the “Debtors' Reduction Strategies” Form.
  • Your accountant/advisor should also be able to assist with the establishment of a “Staff Training Program” relative to your debtors' system so as to ensure that the knowledge on how to administer debtors is available to a number of your team members.

Once a debtors' management system has been instigated, with assistance from your accountant/business advisor, you should be able to combat the indignity of the “silent killer of small business”.

Our recommendation is that you talk to your accountant/advisor to see whether they are able to assist you. If your accountant/advisor does not undertake Debtors' Management Reviews then we recommend that you visit www.esssmallbusiness.com.au and click on to “Find an Accountant/Adviser”. You will be invited to insert your postcode and the system will then notify you of accountants/advisors located in or near your postcode that you could then contact and have a discussion with them about how they can assist you with the instigation of an appropriate Debtors' Management System (these accountants/advisors are subscribing to our Business Advisory Services packages and therefore have material to assist with the implementation of a range of commercial business services for small business operators).

Whilst you are on ESS Small Business we recommend that you have a look at the other material that is available to assist small/medium enterprise operators improve their businesses.

If you have any questions on any aspect of debtors' management or other products and services offered by ESS BIZTOOLS, ESS BIZGRANTS, or ESS SMALL BUSINESS please do not hesitate to contact us at .

If you would like to receive a copy of our special article relative to Debtors' Management: 

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We are presenting a special webinar “How to Get Rid of World’s Worst Title for Aussie SMEs” on Wednesday 15th March 2017 at 12 noon (AEST), 1pm (AEDT), 11:30am (ACST), 12:30pm (ACDT) and 10am (AWST). Please click here to register for the FREE webinar.

If you wish to receive future editions in the Survival Hints for Small Business series, you can visit our iTunes – Podcasts - Survival Hints for Small Business page and subscribe to our podcasts. If you have any questions or suggestions on future items to be covered in Survival Hints for Small Business, please don’t hesitate to contact us.    

News, ideas and tips helping small business with strategies to survive and thrive in today's economy.

Empowering SMEs Episode 001 -  World’s Worst Title for Aussie SMEs

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