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Volume 26, No 4 May 2019 The Publication for Credit and Financial Professionals IN AUSTRALIA As the Australian economy enters a period of increased risk be prepared l Update your skills on Balance Sheet review l Understand how changes to financial reporting thresholds will impact your business l Why tightening credit will impact SME’s first and how to help l Consumers are decreasing their reliance on credit cards
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Volume 26, Number 4 – May 2019
6
Message From the President
48
AICM working for you 8
NSW: Daniel Turk of TurksLegal at the Insolvency &
Litigation half day seminar.
Legislative Update
Financial reporting thresholds to increase from 10
1 July 2019; but what does it mean for you?
By Andrew Spring
Credit Management
To trust, or not to trust? Proper due diligence is the answer 12
By Patrick Coghlan
51
SMEs willing to pay more to avoid property security 15
By Peter Langham Qld: Michael McCann – Grant Thornton.
Is our credit card love affair on the rocks? 20
By Abdallah El-Haddad
The new Treasury Laws Amendment (Combating 22
Illegal Phoenixing) Bill 2019
By Roger Mendelson
Insolvency
Find the gaps 24 54
By Kirk Cheesman
SA: Division President Nick Cooper (L) and Division Director
Gail Crowder (R) present a proud Kaden Davies of Samuel
Electronic Signatures Smith & Son (Centre) with his 15 years membership pin.
eContracts forproperty transactions 25
By Claire Martin
Leadership and High Performance
Claim back your life! 30
By Charlotte Thaarup
56
Vic/Tas: Golf Day: Winners.
10 12 15 20
Andrew Spring Patrick Coghlan Peter Langham Abdallah El-Haddad
60
22 24 25 30 WA/NT: Barefoot bowls winners: Martin Bigg (Capricorn
Society), Alex Cimetta (SV Partners), Rowan McClarty
Roger Mendelson Kirk Cheesman Claire Martin Charlotte Thaarup (Automotive Holdings Group) and Malcolm Field (SV Partners).
ISSN 2207-6549
DIRECTORS 32 34 37
Trevor Goodwin LICM CCE – Australian President
Damien Allison Amaran Frank Gambera
Julie McNamara MICM CCE – Queensland and Australian VP
Navaratnam
Lou Caldararo LICM CCE – Victoria/Tasmania
Rowan McClarty MICM CCE – Western Australia/Northern Territory
Data and technology
Gail Crowder MICM – South Australia
Peter Morgan MICM CCE – New South Wales SMS is no longer an optional extra for collections 32
By Damien Allison
CHIEF EXECUTIVE OFFICER
Nick Pilavidis MICM CCE
Peer to peer lending platforms – disrupting Asia’s 34
Level 3, Suite 303, 1-9 Chandos Street, banking corporations
St Leonards NSW 2065 By Amaran Navaratnam MICM CCE
PO Box 64, St Leonards NSW 1590
Tel: (02) 8317 5085, Fax: (02) 9906 5686
Email: nick@aicm.com.au PPSA
Security agreements and the PPSA 37
PUBLISHER By Frank Gambera
Nick Pilavidis | Email: nick@aicm.com.au
CONTRIBUTING EDITORS Masterclass
NSW – Sev Indrele MICM CCE What the credit professional needs to know 40
Qld – Carly Rae MICM about Balance Sheets
SA – Lisa Anderson MICM CCE
WA/NT – Rowan McClarty MICM CCE
Vic/Tas – Donna Smith MICM CCE Training
EDITOR/ADVERTISING
Recent graduates 47
Andrew Le Marchant LICM CCE Training calendar 47
Phone Direct 02 8317 5052 or Mob 0418 250 504
Email: andrew@aicm.com.au
Around the States
EDITING and PRODUCTION New South Wales 48
Anthea Vandertouw | Ferncliff Productions Queensland 51
Tel: 0408 290 440 | Email: ferncliff1@bigpond.com
South Australia 54
THE EDITOR reserves the right to alter or omit any article
or advertisement submitted and requires idemnity from the
Victoria/Tasmania 56
advertisers and contributors against damages or liabilities that Western Australia/Northern Territory 60
may arise from material published. CREDIT MANAGEMENT IN
AUSTRALIA is published by the Australian Institute of Credit New Members 62
Management, Level 3, Suite 303, 1-9 Chandos Street, St Leonards
NSW 2065. The views expressed in CREDIT MANAGEMENT IN
AUSTRALIA are not necessarily those of Australian Institute of
Credit Management, which does not expect or invite any person
Credit Marketplace 64
to act or rely on any statement, opinion or advice contained herein
(whether in the form of an advertisement or editorial) and neither
For advertising opportunities in
the Institute or any of its employees, agents or contributors shall
be liable for any opinion contained herein. © The Australian
Institute of Credit Management, 2019.
Credit Management
JOIN US ON LINKEDIN In Australia
Contact:
Andrew Le Marchant
Click Here
Ph: (02) 8317 5052
EDITORIAL CONTRIBUTIONS SHOULD BE SENT TO:
The Editor, Level 3, Suite 303, 1-9 Chandos Street, E: andrew@aicm.com.au
St Leonards NSW 2065 or email: aicm@aicm.com.au
CREDIT MANAGEMENT IN AUSTRALIA • May 2019
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aicm From the President
Trevor Goodwin LICM CCE
National President
I
s it a sign of the times or is life just that impacts the credit and finance
rushing by. Here we are in May with the professions.
end of the financial year just around Also fast approaching is the annual
the corner and our AICM activity in full National Conference on the Gold Coast.
swing. I encourage you to book and pay for the
In particular your Institute has numerous conference this financial year to get it in
events occurring over the next two months. your company’s training budget or your tax
The Insolvency roadshow is currently ongoing return. We have an excellent program for the
and there have been fantastic numbers conference with knowledgeable and highly
attending so far in NSW and Queensland with skilled presenters.
great feedback from attendees. For members At the National Conference the Young
in SA, WA and Victoria please get yourself and Credit Professional and Credit Team of the
your colleagues along to this quality event Year is announced, along with the presentation
to expand your training and education from of certificates to our latest Certified Credit
expert presenters and panellists. Executives and the announcement of the
Talking of training, if there are any funds CCE Dux. It is now time for YCP and Credit
left in your training budget before the end of Team of the Year nominations and I look
this financial year then enrol yourself or your forward to seeing a high number of quality
team in a course. I also encourage you to entrants for these awards. YCP nominations
start thinking of your training needs for the close May 31 and Credit Team of the Year
2019/20 financial year and discuss with your nominations close July 31.
manager to ensure your company’s training In June the Women in Credit luncheons
budget will enable you attend appropriate will be held and these continue to grow in
training courses for your education and numbers and prestige, becoming important
the benefit of your organisation. To also dates on the calendar.
assist with your training needs we are in the On behalf of the Board of Directors
process of implementing a new Webinar I advise we have recently re-written the
program. By-Laws which will be implemented from
As discussed the 2018/19 financial year 1 July following on from the re-write of the
is coming to a close quickly and it is now constitution in 2018. We are also updating the
an ideal time to commence thinking of your Institute’s policy documents and introducing
AICM membership and where you have the position descriptions for the Directors and
opportunity working with your employer Divisional Councillors.
to ensure your membership is paid on State Divisions AGM’s will be held in July
time. Group membership has been very and I encourage members to nominate to fill
advantageous for organisations with a number vacancies on local Division Councils and help
of AICM members as it has considerable cost in maintaining the Institute at the forefront.
saving benefits. If you are keen to get involved in local division
May also sees the federal election events and functions please contact National
being held and I would expect whichever Office or your State President. It is not only
party wins will see a number of policy and personally rewarding but beneficial to your
legislation changes that will impact on credit career development and professional growth,
professionals. AICM will be at the forefront and an opportunity to make new friendships
with submissions and senate hearings to with similarly minded credit professionals.
ensure our members’ views are heard.
Furthermore we will ensure we hold high
quality structured training seminars and – Trevor Goodwin LICM CCE
workshops to educate on any new legislation National President
6 CREDIT MANAGEMENT IN AUSTRALIA • May 2019
AICM Activity
AICM working
for you
AICM continues its work with government, key
industry stakeholders and aligned organisations in
making submissions to ensure credit professionals
and our industry have the opportunity to contribute to
Australia’s growth and changing landscape.
AICM’s membership of the Australian Chamber of
Commerce and Industry (“ACCI”) supports this objective
and our interaction with both sides of
government demonstrates our willingness
to be part of change and ensure major
parties are informed about how they will
impact credit professionals.
AICM is engaged and ready to work
with the 46th parliament and the AICM has
established the connections and relevance
with all sides of politics to be able to
continue this work with the new government.
Through the AICMs representative work
and membership of ACCI members of the
AICM are better informed about changes
impacting their roles.
Our message has been and remains clear:
—— the credit our members manage drives
economic activity, specifically trade credit
supports businesses of all sizes to fund
their operations and grow.
—— improving payment times is fundamental
to a strong and resilient economy.
—— better access to data is needed to ensure
fully informed credit decisions.
—— strong enforcement
action must be taken
in all instances of
insolvent trading
and Phoenix activity
especially were
creditors have been
impacted.
—— current unfair preference
laws are unfair to arms
length creditors.
8 CREDIT MANAGEMENT IN AUSTRALIA • May 2019
AICM Activity May 2019 • CREDIT MANAGEMENT IN AUSTRALIA 9
Legislative update
Financial reporting thresholds
to increase from 1 July 2019;
but what does it
mean for you?
On 5 April 2019, Treasurer Josh of the reduced availability of financial
By Andrew Spring*
Frydenberg approved the proposed statements for those companies as
amendments to the Corporations counterproductive. In this article we
Regulations 2001 that will increase will identify the changes and consider
the financial reporting thresholds some of the arguments proffered by
that categorise a proprietary the Associations and others.
company as “large”. The changes will
be effective from 1 July 2019 and are What is changing?
outlined in detail below. From 1 July 2019, the Corporations
The government and some Amendment (Proprietary Company
commentators claim that the Thresholds) Regulations 2019 (Cth)
threshold increase will provide relief will increase the “large” proprietary
to many proprietary companies from company thresholds referred to in the
“red tape”, with the compliance act as shown in the table below.
burden estimated at saving those
entities concerned approximately Why? – from the government
$300M over three years. However, The threshold increases will:
when seeking consultation from the 1. Appropriately represent the level
public, a number of submissions, at which a company becomes
including the combined submission economically significant;
of the Australian Finance Industry 2. Reduce the regulatory cost on
Association, the Australian Institute approximately 2,200 businesses by
of Credit Management and the approximately $81 million p.a.; and
Australian Restructuring, Insolvency 3. Reflect economic growth since the
& Turnaround Association (“the thresholds were last reviewed in
Associations”), considered the impact 2007.
Current New (post 1/7/19)
Consolidated revenue for the financial year of $25 million $50 million
the company and entities it controls*
Value of consolidated gross assets at the end $12.5 million $25 million
of the financial year of the company and the
entities it controls*
Employees of the company and entities it 50 employees 100 employees
controls^
*Control is determined based on the accounting standards
Andrew Spring ^Full time equivalent employees
10 CREDIT MANAGEMENT IN AUSTRALIA • May 2019Legislative update
What does it mean – public information. trading partners and financiers, as it
practically? zz Absence of information leads to a may make it harder for businesses to
Put simply: an estimated 2,200 less negative bias; access credit.
businesses financial statements Audited financial reports provide a In submissions from illion, a
(audited) will be publically available reliable source of information. statistical analysis supported the
from 1 July 2019. zz The population of entities Associations submissions, citing:
Historically, the regulatory impacted is much greater than zz 3% of companies effected by
requirement for the preparation the 2,200 stated in the joint media the increase entered some form
of accurate financial statements release; Equifax estimates the of insolvency procedure during
available to stakeholders was a trade- number of entities effected to be the prior 6 years. As such a real
off for the benefit of limited liability 3,500; illion 4,600. insolvency risk exists;
to shareholders by incorporation. zz Less oversight of business and zz $1 billion of liabilities for these
Reporting thresholds have been accounting practices; companies was trade credit
implemented to limit the financial The audit process provides a outside of terms;
burden on smaller companies strong motivation to comply with zz Total liabilities for these companies
lowering the barrier to entry for small accounting standards. was circa $273 billion, which makes
and medium enterprise. In the United zz Increasing incidence of insolvency them economically significant; and
Kingdom, rather than a threshold per and insolvent trading; zz In the preceding 12 months,
se, there is a “carve out” from the An audit process can identify early 35,000 credit enquires were made
requirements for ALL companies filing warning signs that may stimulate in respect of these companies.
their accounts at Companies House corrective actions earlier.
(ASIC equivalent). A distinction, zz Contrary to other jurisdictions; In addition the Institute of Public
perhaps lost in the announcement The United Kingdom exemption Accountants, also expressed concerns
by Treasury, that the preparation of limits, reviewed in 2018, are below about the value of the relief to these
financial statements are an essential the current thresholds. companies, stating:
element to undertaking a business. zz Contrary to the open banking “For clarity, financial statements
The impacts of the increased and mandatory credit reporting will still need to be prepared
thresholds will be less financial data initiatives; for management, shareholders,
readily available for review of a Objectives aimed at increasing financiers, and for taxation
company’s financial performance, data to fuel credit assessments. purposes. Accordingly, the costs
by credit professionals seeking to zz Current thresholds are an savings from financial reporting
maintain or increase levels of credit appropriate definition of an are likely to be marginal, with
accommodation to the business, economically significant entity; the majority of savings coming
unless an approach is made to the zz $300 million cost savings unlikely from the dispensing of the audit
company directly for the financial to be realised; and requirement …”
reports. Credit professionals, will need Greater costs associated with a
to consider relevant adjustments to reduced access to credit. And then following with:
their internal credit approval systems zz Restrictions of Fintech innovation. “…this is likely to increase business
to factor in the reduction of publically An impediment to information risks as an audit is more than
available financial information. will stifle development of a mere compliance exercise
further automation from Fintech of opining on compliance with
A review of some submissions innovators. accounting standards. Directors
In submissions to Treasury by the may not fully appreciate their
Associations the following specific In an interview with the Australian increased risk exposures.”
reasons were identified in support of Financial Review, Nick Pilavidis,
their strong recommendation against CEO of the Australian Institute of *Andrew Spring
Partner
the increases: Credit Management, warned against Jirsch Sutherland
zz Reducing transparency of these reducing the information available to Ph: 1300 265 753
businesses;
Inability to easily access relevant
information is one of the barriers
to small business access to credit. “The impacts of the increased thresholds will be less
zz Reduced access to credit;
Automated due diligence will be
financial data readily available for review of a company’s
impacted due to a lack of available financial performance...”
May 2019 • CREDIT MANAGEMENT IN AUSTRALIA 11Credit Management
To trust,
or not to trust?
Proper due diligence
is the answer
Dealing with a trust can be can’t use the ‘Trust property’ for
By Patrick Coghlan*
complicated and for some, it can themselves, they are only allowed to
be like opening a can of worms. conduct activity that is in the interest
However, if you play your cards right of the beneficiaries. The trustee can
by performing proper due diligence, be an individual, individuals or a
then you’ll have nothing to worry company.
about. Like trust, ‘trusts’ just require People may set up a trust
a little work to understand the for many reasons such as asset
relationship. protection, tax reduction and
In order to perform due diligence intergenerational transfer of wealth
on a trust, it is important to first in a family. The benefit is that you
understand what they are. The ATO can control, but own, trust assets.
defines a trust as an obligation Once a trust is formed, the trustee
imposed on a person or other entity becomes the legal owner of the
to hold property for the benefit of assets on behalf of the beneficiaries.
beneficiaries. While in legal terms, A trust deed will include provisions
a trust is a relationship not a legal for the trustee to distribute income to
entity, trusts are treated as taxpayer the beneficiaries at their discretion.
entities for the purpose of tax Assets become out of reach of
administration. creditors if the beneficiary faces
A trustee is responsible for financial difficulty.
managing the trust’s tax affairs, Let’s take a look at the various
including registering the trust in the types of trusts to further understand
tax system, lodging trust tax returns why they may be a good option for
and paying tax liabilities. Trustees some people.
The issue with trusts is that they can
be complicated to understand and
time consuming to look into. Some
trusts are aware of this and take
Patrick Coghlan advantage.
12 CREDIT MANAGEMENT IN AUSTRALIA • May 2019Credit Management
Discretionary family Trusts – These irresponsible beneficiary’s access to when you consider what they may be
trusts are established to manage, trust capital an income. hiding, it makes sense to know who
protect and pass on family assets Unit Trust – A trust that divides the you are dealing with. What can trusts
including shares, personal property beneficial ownership of the trust hide?
and the family business from one property into two units. 1. Ultimate beneficiaries
generation to another. 2. Trustee details
Business Trust – These trusts 3. Assets and incomes
Testamentary Trust – This trust essentially manage and protect a
is established according to will business from loss of assets due to It’s common to see companies
instructions. lawsuits and liquidation. using trusts as a way to run their
business. While it is possible to open
Special disability Trust – This trust is When do trusts become an account for your customer if the
established to help family/caregivers complicated? credit application has been filled out
provide future care of disabled family While it’s hopeful to believe that in the name of a trust, there are a few
members. people are doing the right thing, it common mistakes that businesses
is vital to perform due diligence on make when taking on a trust as a
Family Lineage Trust – Designed to a trust as you would for the rest of customer.
keep money and assets in the family, your customers. The issue with trusts zz Not asking for a trust deed.
these trusts protect inheritance. is that they can be complicated to zz Only running a credit check or
understand and time consuming to monitoring the trust or trustee, not
Spendthrift Trust – This is a look into. Some trusts are aware of both.
property control trust that limits an this and take advantage. However, zz Incorrect guarantees sought. ➤
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May 2019 • CREDIT MANAGEMENT IN AUSTRALIA 13Credit Management
When it comes to PPSR matters,
As any property being held in the
name of the trust is for the benefit
of the beneficiaries, the property is
not available to other creditors. From
it is important to understand that
a credit perspective, this can cause
issues. If the credit is to be extended
trusts are different to other entities
based on what appears to be available when registering a PMSI.
assets, then it doesn’t make sense to
open an account unless there is access
to those assets. individual or company. If they When it comes to PPSR matters, it is
However, business is business and are a company, ensure you have important to understand that trusts
if credit is to be extended to trusts, the correct ACN and enter into are different to other entities when
then there are important steps to a credit agreement with this registering a PMSI. Get specialised
performing proper due diligence. entity. advice as to what entity you should be
First and foremost, ask for a trust √ Always check the name and details registering against.
deed. You are allowed to ask for this of the trustee Doing business with trusts is like
legal document. If the trust does not √ Monitor and perform a credit trading with any other entity and due
provide one, this is a red flag. All of check on the trust AND the trustee diligence is essential. However, it just
the information that you need for due √ If the trustee is a company, takes a little more time and digging.
diligence will be on that trust deed. consider a PPSR registration Arming yourself with information
If it is not provided or if the trust √ Get a personal guarantee from the about trusts and trustees is a great
initiates a hard time handing one over, ultimate beneficiaries or directors start. Staying aware of red flags and
it is demonstrating that they have guarantees from the directors of obtaining essential information will go
something to hide and are failing to the corporate trustee a long way to protect your business
be transparent. Therefore, it is worth √ If the trustee is an individual, and develop confidence in trading
questioning if you really want to do consider a PPSR registration and with a trust.
business with this trust. request a personal guarantee
In addition to requesting the trust √ Identify the ultimate beneficial *Patrick Coghlan MICM
Managing Director, Creditorwatch
deed, a basic trust checklist includes: owner (CreditorWatch UBO Ph: 1300 50 13 12
√ Determine if the trustee is an reports can assist) www.creditorwatch.com.au
14 CREDIT MANAGEMENT IN AUSTRALIA • May 2019Credit Management
SMEs willing to
pay more to avoid
property security
What the latest Scottish Pacific
SME Growth Index results reveal
for credit managers
In the current credit environment owners, CEOs or senior financial
By Peter Langham*
the sentiment of Australian business staff of 1257 SMEs across a range
owners when it comes to securing of industries and all states, with
funding, as revealed in our latest annual revenues of $A1-20 million
SME Growth Index, really stands out. (percentages in this article, apart
Nine out of 10 SMEs would from revenue growth statistics, are
‘definitely’ or ‘probably’ accept a rounded to the nearest half percent).
higher interest rate if it meant they
were not required to provide real Impact of property market
estate security. Current property market conditions
The number of SMEs who would are clearly having an impact on
‘definitely’ be prepared to pay more business owners. Almost half the
to avoid providing real estate security SMEs (44.5%) say property market
has more than doubled in the past few conditions are already making it
years, rising from 29.5% to 65%. harder for them to access business
Only 2.5% of business owners funding, likely due to softening house
would prefer to provide real estate prices in major markets.
security rather than pay a higher rate A further 35% haven’t yet felt
over the life of their loan. the impact, but fully expect the
The message around property- housing price correction and broader
secured lending is loud and clear: property market conditions including
eight out of 10 business owners say slowing loan approvals will have a
they resent providing property as a significant impact on their borrowing
security against new loans or as part capacity.
of loan serviceability assessments. When property market impact was
Twice a year, independent last assessed in September 2017, three
research is undertaken by leading out of four SMEs said property prices
business banking market research were having no direct impact on their
firm East & Partners, on behalf of businesses. This round, only one in
Scottish Pacific. The March 2019 five SMEs said they had not yet seen
Peter Langham round surveyed and interviewed the a direct impact. ➤
May 2019 • CREDIT MANAGEMENT IN AUSTRALIA 15Credit Management
“Property prices are having more impact on SMEs in This minority of non-affected SMEs
perhaps reflects how broad the base
Victoria and NSW ... with Queensland small businesses of Australia’s small business sector is,
with more than two million enterprises
the most protected from impact.” across a wide range of industries and
regional markets.
Property prices are having more
impact on SMEs in Victoria and NSW
(affecting 48% and 46% respectively),
with Queensland small businesses
(39%) the most protected from
impact.
Declining or no-change SMEs are
being hit harder by property market
movements, with 54% of non-growth
SMEs already impacted (compared to
36% of growth SMEs). For these non-
growth SMEs, finances are already
stretched thin and they are feeling
“when it rains it pours”. These are the
businesses that currently need the
most support to get through tough
market conditions.
Opportunities for non-property
secured business lending
More than 91% of SMEs would be
prepared to pay a higher rate to
obtain finance if they didn’t have to
provide real estate security.
This overwhelming sentiment
is voiced at a time when a sharp
correction in residential property
prices is affecting capital cities,
coupled with falling building
approval data and predictions by
analysts such as Core Logic and UBS
of tough market conditions still to
come.
Of the nine out of 10 business
owners who say they would be willing
to pay a higher rate for finance if they
could avoid using property as security,
almost two-thirds (65%) indicated
they ‘definitely’ would be willing,
and more than a quarter (26%) said
‘probably’.
Fewer than 1% of SMEs ‘definitely’
would not consider higher rates in
place of borrowing against the family
home, and just over 1.5% said it would
be ‘unlikely’.
Alongside this finding, for the first
time SMEs are about as likely to turn
16 CREDIT MANAGEMENT IN AUSTRALIA • May 2019Credit Management
to an alternative lender as they are to
ask their main bank to fund growth.
Traditionally ‘rusted on’ to the
banks, business owners are becoming
increasingly open to non-bank
alternatives to fund operational and
strategic growth needs.
East & Partners predicts that, if
current trends continue, by the second
half of 2020 alternative lenders will
overtake primary relationship banks as
the key funders of new SME business
investment in Australia.
According to the Productivity
Commission’s draft report into
Australian financial system
competition, a third to a half of
Australian SME loan value is reliant
on property security. For the major
banks, 35% of their small business
lending (by loan value) is secured
by real estate. For banks outside the
majors this figure is higher, at almost
47%.
Given this data, and the Growth
Index’s clear findings about SMEs’
unhappiness about using property
security, it could be that many
business owners are unaware they can
use balance sheet assets instead of
property – assets including equipment
and invoices issued.
Property security one of top
two SME frustrations
Annoyance about having to provide
property as security was clear
amongst SMEs – this was the second
most common funding frustration
(nominated by more than 78%),
behind only loan conditions (just over
80%). To this environment, add likely
changes implemented due to the
Royal Commission, and the impact of
more stringent credit checks. SMEs
looking to fund growth will have to
factor in potential roadblocks around
finance availability and using property
as security. “The added impact of home borrowers potentially being
The added impact of home
borrowers potentially being charged charged fees to use a mortgage broker ... could also result
fees to use a mortgage broker
(replacing the current model where
in a major reshuffle when it comes to how small business
brokers receive their fees from the ➤ owners manage their business growth.”
May 2019 • CREDIT MANAGEMENT IN AUSTRALIA 17Credit Management
“More stringent lending
conditions, along with a
cooling property market,
will impact on SME owners
who need to use their
home as security against
their business borrowing.”
banks) could also result in a major
reshuffle when it comes to how
small business owners manage their
business growth.
Australian Bureau of Statistics data
shows a more than 6% drop in home
loans in December 2018, with a fall of
about 20% for 2018 (the worst annual
fall since the Global Financial Crisis).
While property prices and some
market conditions are cyclical, it’s
important to note Australia’s long- Growth businesses are forecasting zz Among the 791 SMEs planning to
term downtrend in the rate of home an average 4.9% revenue rise (up from invest in business growth in the
ownership. 4.5%). Only one in four SMEs expect first six months of 2019, one in 10
A not-too-distant future where revenues to remain flat. (11%) have no concrete strategy
there may be more entrepreneurs Within this promising bounce in place as to how they’ll execute
renting than buying means that back, business owners are identifying their plans.
increasingly business owners will as being in growth phase more than
have to consider business borrowing any other category – over 38% say Despite these observations, the data
secured against assets other than they are growing, 30% are stable, 12% shows that levels of SME resilience
property. are consolidating, 11% are start-ups and positivity are the highest they
More stringent lending conditions, and 8.5% are contracting. have been in the past six rounds of
along with a cooling property market, Some results run contrary to these the Index.
will impact on SME owners who need positive sentiments: When growth and non-growth
to use their home as security against zz One in five SMEs expect revenues SMEs are combined, total average
their business borrowing. to contract this year, by an average revenue projections have more than
For any business owner who feels of 5.5%. However, the maximum doubled year-on-year since 2016 –
compelled to rely on providing property revenue drop this round (12.2%) from 0.7% to the current 1.8%.
as security for their business loans, the is lower than the most negative However, considerable headroom
credit squeeze may well be on. result in the previous round remains to reach the record high all-
(13.7%). SME growth forecast of 4.9% notched
SME revenue growth on the rise zz One in ten SMEs have no plans to in the first Index in 2014.
In positive signs for Australia’s invest in their business in the first Without a major external
economy, a rising number of SMEs are half of 2019. economic shock, East & Partners
predicting revenue growth. zz The average SME respondent’s expects a greater number of SMEs will
More than 53% say they’ll grow in full-time employee headcount transition towards a stable or positive
the first half of 2019, up from 51% six continues to downtrend, falling growth phase.
months ago. This is the most positive from 71 in the last round to 69 now This trend is confirmed by the
result recorded in the SME Growth – it was 88 in the first round in steep decline in the proportion of
Index since the first half of 2016. September 2014. SMEs who view themselves in outright
18 CREDIT MANAGEMENT IN AUSTRALIA • May 2019Credit Management
contraction mode, from more than cash flow, with invoice finance used by customer-based solutions for
12% a year ago to 8.5% now – a record 11% (up from 7.5%), and 36% utilising managing working capital constraints
jump in the proportion of SMEs trade and import finance. – as opposed to ‘right sizing’ their
moving up from a ‘contracting’ phase There has been a jump in those business funding solution to cater for
into ‘stable’ territory. trying to ease cash flow issues by future growth.
According to East & Partners, offering early payment discounts This is in a post-Royal Commission
there is a sense that the SME sector’s (56%, up from just over 50%). environment in which, according to
most vulnerable enterprises, firmly Almost one in five SMEs are making our research, 22% of business owners
entrenched in the negative growth arrangements with the ATO, up from were finding it harder to access
cohort, have ‘turned a corner’. For 16%. funding due to the Royal Commission,
these SMEs at the bottom of the Taking out or increasing an and 34% expect to find things harder
growth spectrum, business is not as overdraft (13%), using an online this year.
hard as it has been. funding service (7%) and running Finding the right funding solution
credit checks (9%) are around the for each business is becoming an
Growth brings cash flow issues same level as in early 2018. Debt increasingly important task for
How are business owners coping with collection use is slightly down (just business owners and their key
this growth? over 4%). advisers.
Working capital strategies mainly Businesses are also spending more
revolve around credit card debt, time chasing invoices (a cash flow
cash flow forecasting, early supplier strategy named by 14.5%, up from just
discounts, use of trade and invoice over 12%). *Peter Langham
Chief Executive Officer
finance and ATO tax debt amnesty. One in 10 are reducing their overall Email: langhamp@scottishpacific.com
The pressures of growth can sales to ease cash flow pressures. Ph: 1300 207 166
be seen, with a rise in those using Almost one in three SMEs do not Scottish Pacific is Australasia’s largest
personal finances such as credit card even run cash flow forecasting to help specialist working capital provider, helping
to boost their business cashflow (69%, manage their working capital. thousands of business owners with the
working capital they need to succeed.
up from just over 66.5% in March 2018 Overall, it appears that a high Scottish Pacific prepared this article from
when this question was last asked). number of SMEs continue to rely on excerpts of their twice a year SME Growth
Index research. To download the latest Index
Almost half (47%) are using credit cards, rely on the ATO as a or request previous Index research please
working capital finance to improve ‘lender of last resort’ or use disruptive visit www.scottishpacific.com/news/research
“... there is a sense that
the SME sector’s most
vulnerable enterprises,
firmly entrenched in the
negative growth cohort,
have ‘turned a corner’.
For these SMEs at the
bottom of the growth
spectrum, business is not
as hard as it has been.”
May 2019 • CREDIT MANAGEMENT IN AUSTRALIA 19Credit Management
Is our credit card love
affair on the rocks?
For many years, economists The dynamic gives rise to a couple
By Abdallah El-Haddad*
and business leaders have been of questions: firstly, has the credit card
concerned about the notion of peak outlived its usefulness and, secondly,
oil, and the potential impact that are there now preferred alternatives in
running out of relatively cheap fuel the marketplace that will potentially
could have on Australia’s economy. render the credit card obsolete in the
While peak oil has yet to occur, future? If this is the case, what are the
illion’s inaugural Credit Card Nation ramifications for the credit and retail
2019 survey has uncovered a startling sectors as well as for consumers?
fact – that we have now reached peak Consider too the significant
card, as credit card usage in Australia advantages for the ‘good’ consumer
declines at an accelerating pace. from choosing BNPL schemes that
have no service or transaction fee
Have we passed peak card? applied to their use of this credit. This
This decline is so significant that may go part of the way to explaining
many millennials do not have a the loss of interest in credit cards.
credit card at all as banks are The findings in illion’s Credit Card
often reluctant to provide credit to Nation report also raise questions
what they perceive to be a more for retailers who fail to embrace
risky demographic group. In turn, BNPL accounts, as they potentially
young Australians are increasingly risk losing market share as shoppers
accessing innovative Buy Now, Pay switch to firms with such facilities.
Later (BNPL) schemes that better Given its already apparent
suit their desire for a frictionless popularity, the regulatory framework
Abdallah El-Haddad customer experience. surrounding BNPL is likely to evolve
“...we have now
reached peak card,
as credit card usage
in Australia declines
at an accelerating
pace.”
20 CREDIT MANAGEMENT IN AUSTRALIA • May 2019Credit Management
substantially as the sector continues under the age of 30 are twice as likely Australians enter adulthood, and
to expand. The framework governing as their parents to fall more than two those at the other end of the age
their usage will need to ensure that months behind in their credit card spectrum reduce their consumption
consumers are educated as to their payments, suggesting they have as they move into retirement.
responsibilities for servicing these greater difficulty balancing spending This suggests that Australia has
facilities, and are fully aware of and debt, regardless of their credit passed the peak number of credit
their obligations and rights when limit. cards.
undertaking such transactions. Millennials now hold significantly
The long awaited advent of less than one credit card per person. Credit Card Nation 2019 –
Comprehensive Credit Reporting This is both an outcome of the conclusions
(CCR) has allowed illion to develop difficulty of obtaining credit, as well —— Credit cards provide a valuable
these insights for the first time. The as the rise of BNPL products that are way for consumers to manage their
Credit Card Nation report is the first in available. cash-flow and lifestyle.
a series of thought pieces and analytic Consumers who have credit cards —— However, with evolving forms of
studies on the Australian market. with two or more banks are twice as repayments offering consumers more
likely to default on their repayments choice in an increasingly fragmented
The past and present as those with the same number of and competitive credit system,
Credit cards were introduced into cards from a single bank, or a lower Australia is at the tipping point of its
mainstream Australia in 1974, when number of cards in total. credit card cycle.
the major financial institutions The changing face of our spending —— As the market moves towards
combined to offer Bankcard to patterns is reinforced by the plunging BNPL schemes, women will take on
consumers for the first time. use of cash advances on our credit an increasingly powerful and assertive
Today, the Reserve Bank of cards, which has fallen by 35 per cent role in the national economy as they
Australia estimates 14.8 million since 2008. control two-thirds of these accounts.
consumer and 0.8 million business A decade ago, Australians used —— Millennials currently represent only
credit cards exist in Australia, offered their credit cards for cash 35 million 10 per cent of the credit card market,
by a range of financial institutions. times, withdrawing $13 billion from but control 53 per cent of the growing
Collectively, Australians made ATMs or via EFTPOS. BNPL system.
2.9 billion credit and debit card By last year, we were withdrawing —— Therefore, retailers will need to
transactions last year, worth $327 cash on our credit cards fewer than respond to shifts in how consumers
billion, up from 1.4 billion transactions, 23 million times, for a total of only $9 want to purchase and pay off their
worth $207 billion, a decade earlier. billion. goods and services over coming
In 2018, the average credit card years, particularly as younger
transaction was worth $148, compared The future Australians enter adulthood and
to $113 in 2008 as Australia was about The introduction of Buy Now, Pay constitute a growing and more
to be hit by the Global Financial Crisis. Later (BNPL) products in 2015 is now influential proportion of the spending
Australia’s total credit card limit is providing a viable alternative to credit population.
now worth a collective $152 billion, cards, with 3.5 million BNPL accounts —— However, younger consumers will
while the average individual consumer opened in the last four years alone. also need to become better educated
limit is $9,500. BNPL is a new form of lay-by, about balancing their finances as they
Credit cards are more popular with where customers pay off a purchase in currently constitute a much higher
men than women. instalments after receiving their goods. proportion of bad debtors than their
While men represent about 49 per The consumer pays zero interest, but parents’ generation, irrespective of
cent of the adult population, they hold must pay the item off entirely in a set their credit limit.
56 per cent of all credit cards, and period, typically about two months. —— An important component
represent 59 per cent of those who These products are particularly of assessing the true risk of any
are two months or more behind on popular with younger Australians individual to pay off their debts will be
their repayments. under the age of 30, who control a the increased use of Comprehensive
This suggests that women are staggering 53 per cent of the entire Credit Reporting (CCR) by lenders.
more conservative about taking on BNPL market, and women, who
credit card debt than men, and when represent 67 per cent of all users.
*Abdallah El-Haddad
they do, are more scrupulous about BNPL has grown to be one National Account Director
paying it off to avoid defaulting on sixth the size of the entire 45-year- illion
Ph: 0413 976 773
their obligations. old credit card market, a trend that Email: Abdallah.Elhaddad@illion.com.au
On a generational basis, millennials is likely to accelerate as younger www.illion.com.au
May 2019 • CREDIT MANAGEMENT IN AUSTRALIA 21Credit Management
The new Treasury Laws
Amendment (Combating
Illegal Phoenixing) Bill 2019
What it means for Credit Managers and
how you can tackle Phoenixing activity.
By Roger Mendelson* The Bill is focused basically at Who will benefit?
high-level, criminal phoenixing activity. The provisions are really aimed at
By far the bigger problem for shonky activity by directors and their
It is likely that when Parliament credit managers is the problems advisors, so it is likely that they will be
resumes the new Anti-Phoenixing caused by “incidental phoenixing”. more inclined to cease trading and put
Bill (Treasury Laws Amendment This is the term we used to describe a tottering company into liquidation,
(Combating Illegal Phoenixing) Bill small scale activity, which is usually rather than taking action to essentially
2019) will pass into law, as it has an outcome of undercapitalised defraud creditors.
bipartisan support. businesses, lack of a workable
We were invited by both the business plan, lack of business Incidental phoenixing
House of Representatives and the experience and businesses which are Most credit managers experience
Senate to comment on and make undercapitalised. “incidental phoenixing” rather than
submissions on the Bill, so have a criminal phoenixing activity.
detailed knowledge of it. What the new Act will achieve It is not uncommon to do a
In brief summary, the Bill is a zz Dispositions of company property company search on a director and find
disappointment as it goes nowhere where the intent is to weaken that he has been a director of five,
near enough in stamping out the the company in the event of six, or even eight or nine companies
scourge of Phoenixing activity. liquidation will be more easily which have basically failed and ceased
attacked by a liquidator. The trading.
relation back period has been The new act will do nothing to help
increased to 12 months prior creditors faced with that situation.
to the appointment of external
administrators. Advice for credit managers
zz Accountants and lawyers will be As the situation is essentially
less likely to provide advice and unchanged, the best form of reducing
to facilitate the transfer of assets, and even avoiding losses from
because they will be exposed to incidental phoenixing are the age old
criminal charges, penalties and techniques.
claims for compensation. zz Before advancing credit, obtain
zz Directors will not be able to resign a completed Credit Application
where no other director has been Form. The Form should include
appointed. the names of three suppliers and
zz It will be more difficult for directors contact should be made with at
to resign from insolvent companies. least one of those suppliers.
zz The ATO benefits because Director zz Ensure that you have trading terms
Penalty Notices (DPN) will include which have been prepared by a
Roger Mendelson GST and GST estimates. lawyer and which incorporate a
22 CREDIT MANAGEMENT IN AUSTRALIA • May 2019See you at AICM’s
penalty clause, providing that in the event of default,
the customer will be liable for all legal and debt
collection costs incurred by the creditor.
zz Do a full credit search on the customer and check
the status of other companies of which the directors
have been directors of. If there are companies which
have been liquidated or deregistered by ASIC,
warning bells should ring.
zz Your default position should always be to obtain
guarantees from the directors.
zz If you have concerns, be prepared to lose the
business and, insist on a substantial deposit and a
payment program which will ensure that the ultimate
exposure at any time is low.
While the above points may seem obvious to any
professional credit manager, our experience is that the
step which is usually missed out is doing a search of
all companies of which the directors of the applicant
company have been a director of. This process will
increase the approval time and also approval cost but it
will also raise alarm bells and lead to good quality credit
decisions.
The reality is that if a director has been involved
in companies which have failed to pay their creditors,
there is a high risk of this reoccurring. It then becomes
a particularly difficult issue to recover monies from
companies which are usually little more than a shell.
What could have been done
In our submission, we proposed that ASIC set up a
Statutory Demand Register. At present, each creditor
has and is acting in a silo. If it was aware that Statutory
Demands had been served on the potential creditor, this
would ring alarm bells.
We then proposed that any company which had
appeared on the Statutory Demand Register should also
be required to complete a Solvency Statement within
14 days of being requested by a potential creditor. The
Statement would be signed by all directors and would
2019 N A T I O N A L
state that at the time of the Statement, the company is
solvent (defined as being able to pay its debts as and
when they fall due).
Amongst other recommendations, we suggested
that ASIC adopt the New Zealand process, whereby it
is simple and cheap and immediate to search company
CONFERENCE
information which leads to a relatively informed decision
about the credit worthiness of the company, before
16th - 18th October 2019
advancing credit.
*Roger Mendelson
Marriott Gold Coast
CEO, Prushka Fast Debt Recovery Pty Ltd and is principal of
Mendelsons National Debt Collection Lawyers Pty Ltd.
Ph: 1800 641 617
www.prushka.com.au
CLICK HERE FOR MORE DETAILSInsolvency
Find the gaps
Thousands of Australian businesses aged trial balance and credit limits
By Kirk Cheesman*
use trade credit insurance in Australia required, we identify the gaps and
and New Zealand. One of the critical exposure you may wish to consider
elements required under a trade TopUp cover for. In consultation
credit insurance policy is to have with your primary insurer, NCI first
your customers ‘endorsed’ by your endeavours to seek the higher cover
insurer at the level of trade you with the primary. However, if this
require. cannot be met, an alternative Top-Up
At times, due to many factors, a cover indication can be provided.
single insurer may not be able to meet Businesses in Europe have been
the level of requirement for the full using TopUp cover for many years.
credit limit requested. This leaves a Quite often these types of initiatives
business exposed or unable to close and solutions take some time to come
an important sale due to credit level into the Asia Pacific market. However,
requirements. now with the ability to top up your
So what options are available to an primary cover, the solution now
insured to close the gap? exists in local markets for insureds to
The most common approach consider.
is for an insured to trade over and In NCI’s latest customer survey,
above the credit limit insured. Not there were two areas highlighted for
the perfect solution, but, at the same upcoming challenges in 2019. The
time allows the bulk of the trade first issue was getting paid on time,
to be covered or in the event of an the second was finding cover to
insolvency, still have the majority of meet their needs. We are hoping the
their debt covered. Top-Up cover can support clients in
Alternatively, some insurers reducing the cover challenge.
offer caps or additional cover via an So, if you hold a trade credit
alternative product at an additional insurance policy and have under-
cost. insured limits, perhaps a Top-Up
Now for the first time in Australia, solution can assist you in closing the
there is a new offer for consideration. gaps on your cover requirements.
Top-Up cover. Underwritten by Lloyds
syndicate, Equinox, the aim is to close
*Kirk Cheesman
the gap between the insured cover Managing Director
and the outstanding exposure. National Credit Insurance Brokers
Ph:1300 654 500
So how does it work? Email: kirk.cheesman@nci.com.au
By providing a spread of your www.nci.com.au
“At times, due to many factors, a single insurer may
not be able to meet the level of requirement for the full
credit limit requested. This leaves a business exposed
or unable to close an important sale due to credit level
Kirk Cheesman requirements.”
24 CREDIT MANAGEMENT IN AUSTRALIA • May 2019Electronic Contracts
eContracts for
property transactions
Electronic contracts
Australian commerce is becoming contrasts to the postal rule and
By Claire Martin*
increasingly electronic and credit explored the specific words
managers need to be mindful and required at the stages of offer and
supportive of their business and the acceptance or rejection of offer or
need to interact with their clients. revoking of offer.
Forms of electronic contracts 2. 1893 – Harvey v Facey 2 – contract
have been operating in Australia since for sale of land. The Privy Council
before Federation. The first working found that telegrams were capable
electrostatic telegraph was built by of forming a valid, legal, binding
the English inventor Francis Ronalds. contract. However, on the facts
In 1816 when he laid down eight miles of this particular case, the Privy
of wire and successfully transmitted Council held that the agreement
messages. Electric telegrams were was not binding, because in its view
commercially available from 1837 the terms of the telegrams were
in the UK. Between 1854 and 1869, not sufficient to prove that the
telegram lines were opened across vendor had made an offer capable
of forming the basis of a contract.
“The research into validity of electronic signatures to 3. The research into validity of
bind parties ... has revealed there is nothing to stop the electronic signatures to bind
parties, complying with formalities
implementation of electronic signatures being used to and addressing provisions of the
Real Property Act 1900 (NSW),
satisfy the formalities component and bind parties to a Conveyancing Act 1919 (NSW),
Contract, so long as the Contract itself complies with the Duties Act 1997, Electronic
Transactions Act 1999 as well
usual requirements.” as provisions of other State and
Federal statute has revealed
Australia. International trade was there is nothing to stop the
conducted by telegrams and since implementation of electronic
1872 when Australia was connected signatures being used to satisfy
to Java from Darwin, international the formalities component and
trade was able to be contracted via bind parties to a Contract, so long
electronic means. as the Contract itself complies with
the usual requirements.
Relevant cases to peruse
include: Binding contracts in general
To understand electronic case law and The essential elements of a binding
their enforcement relies I find the 3 Contract are:
following precedents very helpful: zz Agreement – Offer & Acceptance
1. 1880 – Stevenson v McLean 1 – zz Consideration
UK case – contract for sale of zz Intention
goods case concerning the rules zz Capacity
on communication of acceptance zz Formalities
Claire Martin by telegraph. Its approach zz Certainty ➤
May 2019 • CREDIT MANAGEMENT IN AUSTRALIA 25You can also read
