In 2015 we were approached by an earthmoving company that had done some work for a builder. The total value of the work done was just under $6,500.
This debt was going to be difficult to collect right from the start as the earthmover:
These pretty much represent the most common mistakes made by businesses providing credit to others. As it turns out, this particular builder was known to us due to past dealings with other clients. We did manage to collect $1500 of the due debt but, because of the lack of paperwork, there was little the builder could do in the way of legal action to recover the money due.
Key lessons from this experience that all business owners should heed:
If you have a customer who is unwilling or unable to meet your conditions, then simply have them pay cash when the work is done (if not before). Unless finance is your core business, you shouldn’t put your business at risk by providing credit to those who may not be able to honour their end of the deal.
We have recently set up a specialist Credit Risk Control division that helps clients set up systems and reduce the risk or impact of debtor failure. To see whether your business is at risk from such issues, we invite you to make use of our new free Credit Risk Assessment tool. It only takes two minutes and gives you a clear indication of your level of risk and steps you can take to reduce this. Pretty good investment of two minutes of your time don’t you think?
Due to the nature of our business, we often have to tell ‘bad luck’ stories of clients to help prevent others suffering the same fate. Today is a good news story though. It has nothing to do with luck and everything to do with preparation.
Our client was (still is) a steel fabricator, providing custom steel work for their clients. It’s specialist work and, once a project is made, it pretty much can’t be used anywhere else, even reclaiming the work done is of little value to the fabricator.
Fortunately, they recognised the risks of providing credit and approached us to help them reduce that risk. We assessed their business and helped them put protocols and systems in place that gave them the highest level of protection possible. This included customised, lawyer reviewed Terms and Conditions that every customer has to agree to before being allowed credit with the company.
Not long after putting this in place, the fabricator had a customer debt of almost $3,700 become overdue beyond their terms. They referred the debt to us and, because they had followed the processes we had put in place with them, we were able to collect the full amount within one week.
The debtor was unable to use the usual ‘excuses’ and ‘tactics’ that we see debtors try and use every day, simply because the Terms and Conditions and the processes our client had used rendered such excuses and tactics as useless.
Though our client could easily have said, ‘We’ll be okay, we don’t need Terms and Conditions or processes in place,’ the investment that they made in putting them in place was more than paid back the very first time they had to apply it.
The same system that we put in place for this client is now the backbone of our brand new specialist Credit Risk Control Division. The system has different levels of application that vary depending on the needs and size of the business.
You can contact our Credit Risk Control specialists via email or phone (1300 308 669) for more information or, alternatively, you can assess your own credit risk with our new two minute Credit Risk Assessment Tool. The tool is free to use and gives you a clear indication of the current level of credit risk your business is exposed to and measures you can take to reduce that risk for minimal cost.
It’s always pleasing when a client places a big order but once the goods are delivered and the sale becomes a debt, that big order can turn into a big problem.
Such was the case for a winery that contacted us to pursue a client debt of more than $170,000. We reacted pretty quickly and managed to collect a little over $30,000 but, after some time the debtor wound up the business, making all remaining debts uncollectible.
This put a massive dent in the winery’s cash flow for some time and put the business at serious risk. That risk could have been reduced though, or perhaps even avoided altogether.
Measures the winery could have taken to reduce their risk included: making proper credit checks (as opposed to ‘credit reference checks’) on the business prior to allowing credit; setting a credit limit that was more in keeping with the size of the business; ensuring a Director’s guarantee was in place to secure the debt; registering the debt on the Personal Property Securities Register (it only costs $6.80!), and; having protocols in place so that they responded earlier when the debt became overdue.
Each one of these steps offers a different layer of protection but none of these had been put in place. You may or may not have debtors of $170,000 or more but any debt is worth protecting. After all, it’s your money in someone else’s account.
We have recently set up a specialist Credit Risk Control division that helps clients set up these systems and reduce the risk or impact of debtor failure.
Contact us to chat about how we can help you with this.
Recently we had a client ring with an interesting question which I would like to share. This client runs an engineering company and had done some modifications on a vehicle. The customer had some issues with the modifications.
The client rectified these immediately then had the changes approved by the licencing department. Our client made these changes at their cost, however, the customer had made a further request for additional work to be done on the car that was not part of the original design issues.
When the work had all been completed the client sent the bill for the additional work and his customer has now refused to pay, stating that the agreement was that the client would rectify the issue at their own costs.
They are now in dispute over the additional work and costs. Lucky for our client the vehicle is still in his possession and our suggestion was they enforce a repairer’s lien on the vehicle. A repairer’s lien entitles you to keep possession of the vehicle until the debt is paid, a lien can only arise if work is done on the vehicle and is in the repairer’s possession.
There are some important factors involved in enforcing a lien.
1. You must have acquired possession of the vehicle with the owner’s permission
2. Lien can only exist for the work that has been performed on the vehicle at that time
3. If the vehicle leaves your possession you lose the authority to enforce the lien
4. If the vehicle is subject to a finance agreement the contract may inhibit the enforcement of a lien.
Did you know that you can get one free credit score per year?
What’s a credit score I hear you say?
It’s the score that financial institutions use to access your creditworthiness when applying for loans or such.
This information is stored on your credit file by a Credit Reporting Body. There are three credit reporting bodies in Australia.
Veda: MyCreditFile.com.au (Veda) Phone: 1300 762 207 (note Veda is now Equifax) https://www.equifax.com.au/contact
D&B: CheckYourCredit.com.au Phone: 1300 734 806
Experian: Experian Credit Services Phone: 1300 783 684
Your credit score is a number from 0 to 1200 and is calculated from your history of paying back loans, credit cards and your history of paying bills. When you apply for a loan the financial institution will obtain your credit history to make a decision regarding whether you are a credit risk. If you have a good history they will loan you the money. If you have a high credit score you demonstrate that you are responsible when borrowing money and are not deemed a credit risk. Alternatively, a low credit score may deem you as a high credit risk and you may find it difficult to borrow money.
Anyone who has ever borrowed money will have a credit file. It has been legislated that Credit Reporting Bodies provide one free credit score per year per person. This is your opportunity to verify the information is correct and have changes made if necessary.
If your credit score is incorrect it may hinder your ability to borrow money from any financial institution.
Here are the different levels of credit scores according to Veda. In case you do not know who Veda is; Veda runs the top credit bureau in Australia and has been trusted in this role for almost 47 years.
You have an EXCELLENT credit score. What does this mean? You have good standing and can be trusted to pay for loans and debts on your credit card. Also, this implies you are in the top 20% of Veda’s active in credit population and you’re HIGHLY UNLIKELY to have any bad records in your annual credit report. There is a high chance of you maintaining your files clear from any disputes at a rate of 5 times better than that of the general population.
726-832 (VERY GOOD)
This Veda Score suggests that you are 2 times better than the general population in terms of your credit score and in maintaining that status. It is unlikely that you will be subjected to an adverse event that might affect your credit standing in the next 12 months or more.
This Veda Score implies that is unlikely that you will expose yourself to an adverse situation that might be in any way be harmful to your credit report and credit standing in the next 12 months. Your edge of having a clean credit report is better than average for Veda’s credit-active population.
An AVERAGE Veda score means that it is LIKELY that you will have an adverse event in the next 12 months or so such as a default, a court hearing or at worst - bankruptcy.
0-509 (BELOW AVERAGE)
This is a score you would want to avoid. On this level, you are at the bottom 20% of Veda’s credit-active population. This suggests a MORE THAN LIKELY chance of you having an adverse event in the next 12 months or so.
We had a client asking if they could put a caveat on their debtor’s house as a means of recouping their debt. I did some investigating into this for them and found that placing a caveat on someone’s house is not a simple process.
Firstly the person you are doing the work for must be the same person who owns the house and if there are joint owners both must agree to the caveat. Not only that, the work must have been done on the property, meaning there must be caveatable interest in the land.
Interests that do not give you a caveatable interest over the land are debts that are not involved with the land or have any other contractual rights in that particular piece of land. This means that if you did a job on someone’s car or sold them items through a store you cannot put a caveat over your debtor’s property.
The best method of protecting your interest is through the PPSR (personal property security registry). However, this must be done prior to the sale and your customer must sign a trade agreement with you, giving you permission to pass their information onto the PPS register.
You cannot do it after you have sold them the products. It’s too late then, it like closing the gate after the horse has bolted.
When it comes to a caveat the item owing must be part of the land and directly related to the owner of the property.
The following is an exert from the legal aid website which outlines what a caveat is and the implications of using this as a means to secure a debt payment. Using a caveat is not a simple way to complete the debt collection process.
"What is a caveat?
A caveat is a notice registered on a certificate of title (a "registered interest"), that prevents dealings (eg buying, selling, registering a mortgage) with the land. A person who registers a caveat is known as a "caveator".
A caveat acts as:
• a warning of an equitable interest in land
• a statutory injunction.
A caveat can only be used to protect an interest in the land. It does not give a proprietary interest in land.
To lodge a caveat, the caveator (the person who takes out the caveat) must have a caveatable interest in the land, in other words, an estate or interest in the land. The types of caveatable interests are varied and complex. Generally, a claim should arise through a dealing with the registered proprietor.
You should get legal advice before lodging a caveat. There are costs consequences. You can now lodge a caveat (improper dealings) with Landgate to help reduce the risk if improper dealings with your property. Once lodged this caveat will stop the registration of any instruments such as transfers, mortgages or leases that would usually need to be signed by the owner. If there is more than one owner, all owners of the property must want to lodge this caveat.
If you are an owner who has a mortgaged property you should check your mortgage terms and contact your lender before lodging a caveat (improper dealings) as you may not be able to do so without the consent of your lender.
Fees are payable to lodge a caveat.
How can a caveat restrict dealings with land?
A caveat can act as an injunction to prevent the Registrar of Titles from registering any instrument either absolutely, or until after notice of the intended registration or dealing be given caveator, or unless such instrument be expressed to be subject to the claim of the caveator.
Always seek legal advice before registering a caveat over another person's property.
If you have been served with a notice from the Registrar of Titles about a caveat you have lodged you require urgent legal advice, as time limits to respond are short.
How does the registered proprietor know about the caveat?
The Registrar of Titles (at Landgate) has to give notice to the registered proprietor that a caveat has been lodged against their property.
What if someone gets a caveat without a reasonable reason?
If a caveat is lodged without reasonable cause, the Supreme Court can order payment of compensation for damage caused. Get legal advice.
How can a caveat be removed?
A caveat can be withdrawn at any time by the person who lodged it (the caveator).
The registered proprietor, (or any person claiming under an instrument signed by the registered proprietor) can apply to court for the removal of the caveat.
In cases where it is clear that the caveator has no caveatable interest in the land, the registered proprietor may apply to the Registrar of Titles (at Landgate) to remove the caveat.
There are different requirements for the lodging and removal of a caveat (improper) dealings. See the Landgate website for more information."
Here at BCA Debt, we're often asked to collect debts on behalf of tradespeople. Unfortunately, it's an area that is fraught with misunderstandings that often leave the tradespeople out of pocket.
In one such case we had recently, a plumber was asked to quote on two jobs at a property that was being renovated. The plumber quoted on the jobs and these were accepted by the client.
When the plumber completed the first job and invoiced the client, she refused to pay, saying that she had wanted the other job to be done first as she had tilers who were waiting for that job to be completed.
Though there was no problem with the work the plumber had actually done, her justification for not paying was that she had to get another plumber to complete the second job and that the effects on her renovation schedule had cost her money.
Thus the plumber did not receive payment for the work done. Even though he referred the debt to BCA Debt for collection we were unable to ‘enforce’ the debt as they had only made verbal agreements about the works to be done.
Misunderstandings are natural but the consequences don’t have to be left at the mercy of the integrity of the parties involved. In this case, if the plumber had had proper procedures in place and clear Terms and Conditions that the client agreed to before the work proceeded, he (and we) would have been in a better position to collect his debts.
The sad part of this story is that it doesn’t take a lot of effort or cost a lot to set up clear rules and protect your interests as a creditor.
We have recently set up a Credit Risk Control assessment tool that helps you determine if your interests are currently well protected and then provides recommendations on actions you can take to reduce your risk. The tool is free to use and takes less than two minutes to complete. Whether you are a tradie or not, if you are providing goods or services on credit, we strongly advise that you assess your own credit risk and follow the recommendations given. It could stop your money from going down the drain.
Smart business people know that a sale is not a sale until they are paid, smart business people also know it is not always possible to be paid right at the time of the sale or when an order is placed and the smart thing to do is to give their customers time to pay or 'put it on the books' rather than lose that sale.
Once you allow your customer to book up your products you are entering into a credit situation. This really means they are lending money from you to pay for the products they have purchased, this is with the intention of paying you back in the future. Now there is nothing wrong with this, this is how commerce works and how we create income and wealth for ourselves. This system has worked for thousands of years and mostly on face value or a handshake.
But times have really changed and up until 2008 when the global financial crisis occurred, trusting others in this manner had largely worked out alright.
Thankfully, there have been some significant changes because our government has reacted in a very positive way, this was to implement a fair system that benefits all businesses, not just big organisations or banks.
By introducing the Personal Property Security Act in 2009 or PPSA, all businesses can now be protected. What this means is that if you enter into a commercial arrangement with someone, you can register your arrangement through the PPSA register, called the PPSR and become a secured creditor.
Let me explain this is simple terms with a scenario we all understand if you have ever had a loan with a bank you would have signed a contract, in that contract you give the bank security over certain assets. In the event, you could not meet your financial commitments the bank would seize assets owned by you to the value of what was owed, including any cash, property or inventory if you had a business. The bank always sat on the top of the food chain in this respect, it made no difference if you owed money to other creditors the bank came first. With the introduction of the PPSA in this scenario the bank would only be able to seize assets it had a legitimate right to, let say your inventory includes products used to build something, say it was timber and you build sheds and your timber supplier registered the timber on the PPSR then the bank would have no rights over that timber and could not seize it. The timber vendor through a retention of title on the PPSR, would be secured and have the right to come and take his timber back.
Thousands of successful business across Australia are taking advantage of this system, if you are a business owner and sell products on credit we urge you to put this in place or risk loss due to these changes.
You see these changes protect those who are registered, in the case where a company goes into liquidation when appointed the first step a liquidator will take is to check the register to see who has security over any of the assets, those on the register are secured by this. If you have any products or inventory present on the premises at the time of liquidation they become assets to the liquidators and will be sold off to pay the debts and the first debts to be paid will be those from the registry.
Putting this together does not have to be difficult everything you need to be PPSA compliant is included in our Credit Management Toolbox.
Following is a list of things you need to do to implement the PPSA in your business:
Then your customers must give their expressed permission for you to pass their information onto the PPSR (registry), that means they must sign a contract with your organisation to give permission to put their information on the registry.
Once you have all the above sorted out you can start using the PPSR and truly be a secured creditor.
Time and time again we see situations where a debt has been left for so long that the client and customer relationship has broken down. Usually, this happens because someone is not dealing with complaints or customer service issues and because of this disputes and problems are left to fester.
Often many thousands of dollars are left sitting on accounts ledgers because the business does not have adequate complaint policies in place.
One of the biggest problems is when the dissatisfied customer has to employ another service provider to fix issues that have not been rectified, this is when it becomes really difficult as a debt collector to convince the customer to pay, as they have now incurred double the costs.
Dispute resolution is one of the main issues we deal with at our agency and honestly a good percentage of debts could have been avoided. A simple paragraph in your documentation or a process customers can follow on your website regarding complaints resolution is all that is needed.
Both parties have the rights when it comes to disputes, there are two main areas that cover small businesses, the first is the Australian Consumer Law (ACL) and the Competition and Consumer Act 2010 (CCA) (formerly the Trade Practices Act 1974). Further to these the Australian Competition and Consumer Commission (ACCC) is the national government agency which promotes compliance with the CCA and, where necessary, takes legal action against businesses that break the law.
If you are a business owner the ACL automatically provides your customers with a basic set of consumer guarantees when they purchase your goods or services.
Your customers have a right to have a problem with a product or service remedied if it fails to meet the guarantee.
Further to this, you have a right to remedy a problem with a product or service, this means a customer cannot refuse your offer to remedy a problem and employ another person for the remedy.
Having said this, policies on time frames and documentation when a job has been finalised are imperative to protect both you and your customers. Having documentation in place for your customers to sign when a job is completed that they are satisfied with the job provided makes it clear for both you and your customer that there is closure at the end of the job. In the event your customer is not happy with the job, you also need a specified time frame and form for your customer to fill out and then an outline of how you will remedy the problem.
By taking these simple steps before any disputes result and save you a great deal of pain in the long run.
If your staff understand the process then it becomes a simple process to follow to ensure customer satisfaction and your customer relationships are not left to fester but allowed to flourish as they should.
Please find a here an excellent document that explains the rights and obligations of both parties and an example of a disputes resolution form you can use is your organisation.
It seems that we are well and truly into Election mode here in Australia and the media has definitely not let up on this. There has been a very thorough campaign drive to get Australians to enrol to vote and having twin boys just turned 18 has also highlighted this in our household.
I know some of you savvy business people may be thinking this would be a great time to head down to the electoral office and have a look for fresh information on some lost debtors. If you weren’t thinking of this and now are please read on, as there are some very large consequences for misusing that information that I would like to make you aware of.
What the Institute of Mercantile Agents Say
Recently at the Annual Institute of Mercantile Agents Conference, the electoral role came up in the discussion as an issue of privacy and the rules around using it as a method of finding people who owe money. The institute’s direction to members was that the electoral role was not an acceptable place to search for debtors as there are strict rules around the use of the information on the role. The CEO Alan Harries outlined the dangers of misuse and fines that can be incurred if found guilty of an offence.
Two Important pieces of information
What I would like to highlight here for you is two important pieces of information from the electoral commission website which Mr Harries was eluding to. Please find as follows;
- An electronic copy of the current electoral roll (e-roll) is available for public inspection at any AEC office. You may inspect the publicly available electoral roll for the purposes of:
• Checking your own enrollment details, or
• Making an objection to the enrollment of another elector.
You may not copy, record or photograph any information from the electoral roll with any electronic device.
- The roll is not available for sale in any format. Consistent with the restrictions that are in place for roll information provided under section 90B of the Commonwealth Electoral Act 1918 (section 91B contains offences on the commercial use of section 90B information with penalties of up to $170 000), the AEC discourages any inspection of the roll information that involves some commercial or other non-electoral use of this information.
As you can read there are large penalties up to $170 000 for misuse of the information.
Further to this, I would like to let you know that BCA Debt does not use the electoral role as a method of finding debts, BCA Debt use paid legitimate searching companies for the purpose of finding your debtors and the staff of BCA Debt follow strict guidelines when searching for people.
Breaching a Persons Privacy
I would also like to point out that breaching a person’s privacy has now become something that is not taken lightly by us or the industry we work in and I cannot stress enough how important it is for all businesses and their personnel to be conversant with the ASIC/ACCC Debt Collection guidelines for collectors and creditors.