Peter Cox outlines the importance of paying your business invoices on time, every time.
There is only one answer, and that is yes!
Getting your customers to pay on time should be a key business performance measure and with the minimal cost to use one of the many on the spot EFT payment tools (versus the cost in chasing up payments later), this really is a no-brainer.
But what we are talking about here is paying your invoices on time.
This is even more important given the massive technological developments in communications in recent years. The ability of organisations to accumulate personal and financial data, disseminate it and then distribute it to central credit bodies, who can then have that information accessed by financial institutions is now the norm in credit management.
The ramifications for your company and yourself are enormous.
Hidden in any mortgage or credit application document will be clauses that relate to your responsibilities in the payment and conducting of the account. You know the document I am talking about, the 120 page plus mortgage and 10 page credit card applications with microscopic fine print that really only a solicitor would enjoy reading (and possibly charging you for the privilege).
There are three types of creditor, the first being the Australian Taxation Office (ATO), which organisations often pay late, some, not at all! They are a special type of creditor when it comes to non-payment in that they have some powerful legislative powers, in a lot of cases over and above secured creditors.
Secured creditors include the banks who can have real estate mortgages and other forms of security such as EMAs (equitable mortgage agreement), which is sometimes referred to as Deed of Charge, usually over the debtors ledger or inventory or plant and equipment or a combination of all of these assets.
The other type of creditor is the unsecured creditor, normally suppliers of product and local town businesses. They are the low-hanging fruit in the credit institution collection process.
So why is it important to set the payment of outstanding debt obligations as one of the highest priorities in the administration of the pest management operation?
Simple, the communication process between credit institutions and applicable trade creditors who are registered with the variety of credit agencies in Australia.
These agencies collect credit information and through membership share information about the establishment of an account, the payment history and defaults that can occur on your account and even set a credit score.
Now well you may say, “Hang on that is an invasion of privacy.” Remember what I mentioned earlier, you sign your privacy rights away in the fine print on the application form, not only just to that credit provider but also to other credit providers with whom they share information. With the latest technology some of the information is simply automatically processed.
The gathering and ongoing use of credit information builds a database of your operations and personal creditworthiness. This is important to remember. A poor payment history can affect the ability of your business, or you personally, to get credit in the future.
Don’t forget, as a director of a company you may be held personally responsible for the debts generated if the company was trading insolvent. If the business is a partnership, partners can be joint and severally liable for outstanding payments to creditors when they cannot be met.
So obviously this whole area of the application and reviewing of payment history can have a huge impact on your private life depending on your position within the operation.
If the amount unpaid is subject to a dispute there is a resolution process that can take place, it varies between the states.
Is being conservative in applying for credit appropriate? Of course it is. Is paying within credit terms important? Well, I think you know the answer to that question.
Peter Cox, Peter M Cox & Associates