18 January 2019

A homewares company became worried about the financial stability of one of its customers and decided to use the Personal Property Securities Register (PPSR) as a way to protect their unpaid for goods should their customer collapse. To make sure they got the registration right, they asked EDX to do it for them.

A few months later, their customer went into administration owing them one million dollars. Thanks to their PPSR registration, they managed to recover 50% of their losses.

It was all the evidence the homewares company needed to realise the value of getting expert advice. They decided to register all their security interests on the PPSR and to do it using EDX software. 

 

Dodging a Major Loss

When the homewares company first approached EDX to register this one customer, they were dubious about spending money registering the rest of their security interests. With an extensive product line and over 5,000 customers, they knew they would be up for thousands of registrations.

They approached EDX to register one customer on the PPSR because they were feeling increasingly nervous about doing business with this customer.  Although they had a large accumulated debt with them, they were continuing to sell to them. Because it only cost a small amount to register one customer on the PPSR, they thought it was worth giving it a go.

EDX PPSR specialist Andrew McLellan looked after the registration. “There was an ambiguity in the PPSA that required us to take a defensive approach and register the security interest twice. The PPSR fees were $13.60.”

Andrew recalls a phone call from the homewares company a few months later.

“They rang with the news of how this PPSR registration had saved the day. They told me what a great win it was for them and how easy it was to recover their debt. While their competitors were left wrangling with an insolvency practitioner playing hardball, they didn’t even have to argue because their PPS registration was done properly.”

The homewares company customer went into administration a few days before Christmas and then traded over December and January under administration. Because they had PPS registration, they received full price for the stock sold – which recovered $250,000 worth of cash. They made an additional $250,000 on the stock recovered, which they were able to resell. Again, thanks to the PPSR.

All the debt was not able to be recovered because the rest of the stock was either sold before they took out the PPSR or before their customer went into administration.

“For a million-dollar debt, they recovered half a million, which is certainly better than recovering nothing,” says Andrew.

 

From sceptics to true believers

This significant win completely changed their outlook on the PPSR.

The moment the homewares company made the massive recovery, it became easy for them to justify getting the expert advice they needed. They now use ESIS in-house to perform around 50 PPS registrations, amendments or discharges on the PPSR each month. ESIS is an application from EDX that is designed to provide an easier way to register and manage security interests on the PPSR correctly.

It took 15 minutes for their three accounts receivable staff to learn how to use it. The system is so quick that it takes only a minute to load a registration. Based on a typical month of around 50 registrations, the homewares company spends as little as one hour a month on PPSR work.

 

Avoiding bad debt

By registering their security interests on the PPSR, the homewares company saves an estimated $30,000 per year. Much of this comes from avoiding bad debt when customers sell their business.

Before they started registering on the PPSR, losing money when a customer sold their business was a common problem. As soon as a sale went through, a customer would disappear, and they wouldn’t know where to chase them for unpaid goods, so they’d end up writing off the debt.

Now with PPS registrations, it’s a different story. They are part of the settlement if a customer sells their business because the sale can’t go ahead with unresolved security. Registering their security interests gives them the leverage to ensure they get paid.

Their policy is to register all customers – because a small customer can turn into a big customer. It costs between $7-$10 per registration. They tell customers that PPS registration is company policy. They explain that it doesn’t mean they’ll take their goods back if they are late paying. Rather, the PPSR protects them should they go into administration or liquidation. 

Their advice to other businesses vacillating about whether to register is to focus on the benefit of a PMSI (Purchase Money Security Interest). Because you can end up standing ahead of the banks and other creditors, it puts you in a powerful position.

“Think of PPSR as your insurance, your peace of mind that you’re ready should a big client fail,” says Andrew.

 

Questions?

Email us.  Our specialist PPSR team are here to help.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.