SMEs warned: re-think what you own and register on the PPSR
SMEs warned: re-think what you own and register on the PPSRTips for SMEs from Australia’s leading insolvency, business, trade finance and credit experts
Sydney, Australia: Thursday 26 June 2014 –Insolvency firms, business advisors, trade finance providers and trusted source of data intelligence, Veda, are warning small to medium enterprises (SMEs) about the consequences of not understanding the Personal Property Securities Register (PPSR).Not having property interests registered with the PPSR can be devastating if a customer or related entity goes into administration or liquidation.Carol Chris, General Manager, Commercial & Property Solutions at Veda, said every year more than 25,000 Australian businesses become insolvent.“SMEs are the backbone of the Australian economy, estimated to account for 69 per cent of the total Australian workforce and 57 per cent of total business income earned during 2011–12[i]. Yet SMEs are not as well-resourced as larger enterprises to manage business risks. So for SMEs, utilising the PPSR is crucial to assess and minimise the credit risk of a prospective customer and recover debt if they don’t pay or become insolvent,” Ms Chris said.“SMEs that lease goods, lend money or sell on terms, such as retention of title, need to know how to make the PPSR work for their business.”Peter Marsden, a partner at national accountancy and business advisory firm RSM Bird Cameron, said the most common PPSR issue is when a client’s customer has gone into liquidation and the client needs help to get back their stock.“For a smaller business, not being able to reclaim stock from a customer who hasn’t paid for the goods and who has gone belly up, could be the difference between staying in business and going bankrupt themselves,” Mr Marsden said.“For SMEs, the consequences of not protecting their assets through the PPSR can be catastrophic,” he said.The new PPSR business regime came into effect in January 2014 after a two year transition period.Liquidation expert Moira Carter, Director of BRI Ferrier, said that under the new system, ownership of goods counts for very little.“The biggest stumbling block for businesses is this concept of ownership. To enforce ownership, the new law requires the extra step of registering on the PPSR. SMEs with lease agreements are highly exposed unless they’ve registered their security interest,” Ms Carter said.Ms Carter said despite the government launching the PPSR in 2012, there are still a significant number of smaller suppliers, especially tradies, who did not register their interests before the transitional period ended.Ms Chris said that Veda has been assisting thousands of SMEs each year by providing data intelligence in relation to the PPSR through its online search and registration portal VedaCheck.Lawyers, accountants, financial advisers and liquidators use VedaCheck to conduct PPSR searches and to register security interests for their business on behalf of clients.
Tips for SMEs from Veda and major trade creditor Fujitsu General AustraliaMajor air conditioning systems supplier Fujitsu General Australia sells all of its products on credit, and registers its interest in these products on the PPSR. Veda assists Fujitsu General Australia with its PPSR registrations.
1. Weigh up the costs and benefitsSMEs need to first determine if they should be registering their interests on the PPSR by weighing up the costs and benefits.Eric Milne, National Credit Manager for Fujitsu General Australia and chairman of the Australian Credit Forum, said SMEs should ask themselves ‘How many bad debts have I suffered in the past 12 months, two years or even five years, and are these debts sustainable?’“A one-off $50,000 debt could be immediately detrimental to a small company,” Mr Milne said.“Fujitsu General Australia sells 100% of its products on credit and registers all of them. Due to our PPSR registries, we’ve been able to recover stock valued at $100,000 over the past two years, and also recouped $300,000 that would have otherwise been written off as bad debt. If you add all that up, we’re miles ahead in terms of return on investment.”
2. Consult a professional credit adviserIt’s important to set up your business processes and systems before registering your security interests on the PPSR.Mr Milne said this is where a credit risk adviser comes in handy, especially for SMEs.“Seek professional advice. Government and professional organisations, such as the Australian Institute of Credit Management, are there to help. Contact them and speak to a professional credit manager.”As an SME, it’s not always financially practical to take on a full-time credit manager, but Mr Milne believes an affordable alternative is to hire a credit manager on a consultancy basis.
3. Cleanse your data When registering your security interest over a good, it must be made against a company’s ACN or a business’s ABN.“Making sure your customer database is up to date with the correct legal names and business structures, as stated on ASIC records, is one of the first things your credit adviser should do,” Mr Milne said.
4. Update your contracts Any business that has a retention-of-title clause in their terms and conditions should be using the PPSR, yet many SMEs often have very weak clauses that won’t hold up to legal scrutiny.“Ensure the retention-of-title clause in the contract’s terms and conditions is clear-cut, valid and iron-clad. This is where consulting a credit manager is useful,” Mr Milne said.Businesses should also be updating important documents such as sales contracts, invoices, and terms and conditions of sale. All credit application forms should clearly state your business’s security interest over goods sold on credit.For further PPSR tips a series of white papers are available for download on the Veda website.
[i] Communications report 2012–13 series Report 1—Australian SMEs in the digital economy JANUARY 2014