2022 is upon us and COVID-19 is still dominating our businesses and lives.
With many businesses struggling, cash flow is vital to keeping a business healthy. You need to set yourself up now to put yourself in the best position possible to recover debts and keep your business with a steady cash flow.
This article looks at three strategies to put you in the best position to protect your business.
Review your contracts
Have you registered all security interests granted under the contract?
Be aware of the Personal Properties Securities Act – seek legal advice as to whether you are able to register your interest on the Personal Properties Securities Register (“PPSR”) and ensure it is done correctly and as soon as possible.
If your customer enters into liquidation and your registration on the PPSR is valid, you may become a secured creditor and be paid ahead of unsecured creditors.
Tip - Ensure that your PPSR interest is registered over the correct entity – a common and costly mistake is to register under the wrong entity:
- If you are dealing with a trust with a corporate trustee – to be safe register under the ACN of the trustee company and the ABN of the trust.
- If you are dealing with only a company (which is not a trustee of a trust) you should register the company’s ACN.
Ensure that COVID-19 is factored into the contract
Ensure that it is clear what is to happen if there is a delay or cancellation due to COVID-19 factors – you should consider factors such as shipping delays, employee shortages and government restrictions.
If there is a force majeure clause, be specific as to how and when it applies in relation to COVID-19.
Take personal guarantees where possible
Ask for a personal guarantee from the director (if you are dealing with a corporate entity) and perform a property search to see if the director owns any property in their personal name. This allows you to seek payment from the director personally if an administrator or liquidator is appointed to the corporate entity.
Review and update your terms and conditions
What are your trading terms?
- Start enforcing your trading terms.
- Consider providing less (or no) credit to high risk customers.
Check for default interest.
- Is there interest payable upon default and if so, what is the interest rate applicable? If you do not set this out in your T&C’s you may not be able to charge interest on overdue invoices.
Update T&C’s to include clauses to allow you to take security and personal guarantees.
Ensure that your T&C’s cover COVID-19 related issues.
- You should be specific in your terms & conditions / contracts that you cover delays / cancellations due to COVID-19.
A little cost upfront to obtain good advice regarding the best strategies to get paid will put you in the best position to be paid in 2022.