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Navigating Covid-19: 5 tips SMEs need to know

  • Written by Patrick Coghlan, CEO of Creditorwatch


As a result of the Covid-19 and as a way of bolstering the business sector, the Federal Government recently introduced changes to Australia’s insolvency laws. As we enter our third month of this global pandemic, it’s important SME business owners understand exactly how these changes will affect them and the steps they should be taking to make sure they’re safeguarding their future.

The saying goes “we’re all in this together” and it’s clear that businesses across all economic sectors and of all sizes are facing similar hurdles and opportunities when it comes to staying afloat. Below are five actions that SMEs can take now, to ensure they enter the new financial year on the front foot and in a sturdy position.

Understand the changes being made

The truth is that 50 percent of companies that incur a CreditorWatch payment default end up in administration within 18 months. During such unprecedented times, these statistics are likely to only heighten and are ones we should be paying strong attention to.

The removal of illegal insolvent trading (at least until September anyway), has created a sense of mistrust between creditors and their debtors, but, it’s important to note, SMEs can still take legal action where necessary with some courts still continuing to run via the telephone or online.

Don’t feel you have to wait six months before registering payments defaults or obtaining a stat demand.

Reassess your entire ledger

Your first point of order should be an assessment of your ledger. You may already have a firm idea of which customers are ‘failing’ or ‘hibernating’ at this point, however, for customers that do fall into the hibernating category, it’s important to identify if they represent a high risk.

The economic conditions have created an air of uncertainty for customers, so it’s crucial to ensure they’re meeting their payment times. Follow them up but keep empathy at the forefront of your mind when doing so. Conversely, for customers that are trading in the black, now is a good time to target them for credit limit increases. Showing them a little extra attention whilst times are tough could pay dividends in the future.

Keep an eye out for illegal phoenixing behaviour

In the wake of the 2008 global financial crisis, there was an increase in the number of businesses conducting illegal phoenix activity and there’s a significant possibility that history will repeat itself over the next 6-12 months.

To curb your risk of this fraudulent activity, it is important to ensure you have a deep level understanding of the customers you are involved with.

Take a look beyond a business level and comb out any knots at a director level too. A director with a payment default is five times more likely to experience another payment default, a director with a court action is twice as likely to have another court action and a director with a failed business is two times more likely to fail again.

Perform director due diligence - have these individuals had companies before? Under what names? How are (or did) these companies perform?

Assess credit limits currently on offer

Protecting your business is key, and to do so, it’s important to reassess your credit limit. Halve all credit limits where possible or opt for cash-on-delivery.

Doing so – or even just having the conversations – will give you a clearer picture of who you are dealing with and just how sturdy their business is. With the school holidays and public holidays having just passed, it may be that many businesses decide to close their doors and hibernate from this point forward. Try to be a bit lenient where you can.

Pick up the phone, you’re already looking at it anyways

The key to assessing how your customers businesses are performing is through face-to-face conversation where possible, otherwise by talking it through on the phone. In 2020, we’ve become incredibly reliant on technology and the ability to send an email or text, but, you’ll get significantly more out of a phone conversation. It’s not only another point of contact (communicating is particularly important during self-isolation) but shows customers you have an interest in their success.

Maintaining trade relationships will strengthen trust and you’ll also be able to get a real sense of what people are prepared to and can actually pay.

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