New Credit Reporting Rules Now In Operation
New credit reporting rules commenced in March 2014. These have instituted substantial changes to the way banks and lending organisations approve loans and credit facilities. Until now, lenders have only been able to access limited information about a loan applicant or a customer, such as major credit infringements. That's all changed, as part of the new privacy rules, which were also introduced in February 2014.
Under the new regulations, lenders and banks can share information with credit reporting businesses and then receive more information about their customers and loan applicants from the credit reporting agency. The new legislation allows banks and lenders to provide information to credit reporting agencies (eg Dun & Bradstreet) and enables banks and lenders to advise credit reporting agencies of any infringements in payment requirements that have been made by that customer or loan applicant. This enables the credit reporting agency to prepare a report for a bank as to how an applicant has performed on their current loan. The repayment history is only available to the financial services segment of the credit providing industries. This means that credit providers can provide information about the accounts that an applicant has already opened. The repayment history is only available to banks and finance companies.
The problem for small business operators, who are utilising personal credit facilities to operate their business, such as a credit card or some form of secured personal finance, is that their payment history will find its way to a credit reporting agency's file. If you are utilising credit cards in the financial management of your business, you will need to ensure payments are made on time, otherwise, adverse reports will be created within a credit reporting agency's files.
Reduction In Debtors' Days Outstanding – Critical For Business' Success
Preparing a monthly debtors' aged analysis is a powerful weapon in maintaining your cashflow and in so doing contributing to the operation of a successful business. However, your business can be prejudiced when late payers start pushing payment terms beyond the negotiated terms of trade. These payment delays can cause a lot of damage to your business' financial health.
Business managers need to pay particular attention to the management of the debtors' function, to ensure that the debtors' days outstanding is being managed in accordance with the business' budget. A blowout in debtors' days outstanding is one of the prime indicators that there is potential danger emerging for the business. Debtors' days outstanding is an early indicator, because it's where 'the rubber meets the road' in terms of the health of the business.
If you budgeted your debtors' days outstanding to be 35 days and they're actually 55 days, you will need additional working capital in your business. Poor debtors' management is continually identified by liquidators as being one of the primary reasons for business failures. The management of debtors and the continual evaluation of debtors' days outstanding is critical for the operation of a successful small business.
Management need to place greater emphasis on chasing up debtors as soon as they miss a scheduled payment date. Don't be embarrassed about contacting customers, they owe you money. You are not in business to prop up their businesses. You are not their banker. Sending out statements and emails to debtors doesn't really work in encouraging debtors to make payments. The best procedure is to make a friendly phone call to your customer as soon as they slip outside the negotiated terms of trade. This is a courtesy call to ask them when you can expect to receive payment for your invoice. Most people will respond to this type of personal calls. If the customer has not responded to the friendly phone call, have someone else in your organisation, who is not involved in the day-to-day activities with that customer, make the next telephone call.
The type of person you employ, to manage your debtors, is someone who will listen to the customers, but will be very firm in stating your requirement to get paid and they should confirm each telephone discussion with the customer in writing. When making telephone calls to debtors, who are behind in making payment, it's a good idea to outline to them the various payment options you have available (eg credit card, direct debit, cheque, etc). After outlining these options, say nothing. Wait for the debtor to respond and make their commitment to you. If the customer has any complaints or queries about any aspect of their account, they're going to raise them during these calls and this gives you the opportunity to render outstanding customer service by responding to those queries or complaints. However, what you are doing is really emphasising to your customer that, in a firm and reasonable manner, you expect them to make payment to you on a due date. After two of these calls, if there has been no response from the debtor, you should immediately refer the file to a debt collection agency and cease further trading with the customer.
Why Are Director's Guarantees Important?
Unfortunately, there are some people within the business community who hide behind corporate entities and incur debts for which they are unable to pay. However, they do have personal assets. This is one of the reasons why it's a very common practice in debtors' management to ask for directors of private companies to offer personal guarantees to a business that is going to allow them credit.
The business' system should include a request for a director's guarantee form which is appropriately completed and signed before any credit is granted. The guarantee form should be filed so that it can be found at some future date when it may be needed. This could be four to five years' away. Have you implemented appropriate systems for the filing and retrieval of director's guarantee forms received by your business?
If you would like to have a discussion with us in regards to your business' director's guarantees, please don't hesitate to contact us.
Succession Planning – Why Is It Necessary?
There are thousands of business owners in Australia wanting to plan an orderly succession in their business. This situation is complicated by the number of business owners, described as 'baby boomers', who are contemplating disposing of their businesses.
Succession planning is not just about someone who is 60-70 years of age. Succession planning can apply to businesses at any age of the owner. In fact, succession planning also applies to virtually every position within the business. Who is going to take over if something happens to a particular person? Who should be getting trained and developed through professional development training courses, etc, so, in two to three years' time, they will be able to perform specific duties within the business?
Succession planning is part and parcel of the ongoing activity within a thriving business. It is a challenge that every business operator should be taking very seriously. To start the process of succession planning, you first need to review your business.
If you would like us to assist you in conducting a review of your business for the establishment of an effective succession plan, please don't hesitate to contact us.
What Makes A Business Successful?
A leading business person has identified success in business as follows:
• 'Spirit' of the business – is there a 'can do' attitude?
• Being prepared to go the extra mile for customers.
• 'Culture' of the business.
• Is there a caring attitude?
• Loyalty to customers, suppliers and the team.
• Growth of the staff team, customers and/or franchisees.
• Take up of technology.
• Using technology to improve the situation for team members, customers and suppliers.
• Being prepared to work long hours.
• Do unto others what you would like them to do to you.
• Keep your promises.
• Golden rule – under promise and then over deliver.
• Above all else – have fun, otherwise why are you in business?