Australia is lagging the rest of the world in terms of late payments described as the “silent killer of modern business” by the Australian government’s Small Business Ombudsman Kate Carnell in November 2016.
An international study of 30,000 invoices from 80 countries undertaken by UK-based Market Invoice found Australian businesses were being paid 26.4 days later than the traditional payment period, far later than the next latest country, Mexico with 18.6 days or South Africa at 16.5 days late.
Based on the traditional 30 day payment terms this means that Australian small businesses are being paid on an average of 56.4 days.
Ms Carnell said that “in Australia more and more small businesses are falling victim to the unscrupulous payment practices of some big businesses – and even some governments – that are quite frankly a drag on productivity”.
The ombudsman’s office has indicated that “90% of small business failures are due to poor cashflow. Small businesses are owed $26 billion in unpaid invoices and the average owed for each small business, at any one time, is $13,200”.
Whilst this report identified that some big businesses and some government departments are slow payers there is another possible reason for the high debtors’ days outstanding in Australia and that is that many small/medium enterprises do not have a proper debtors’ system installed in their businesses.
This is where accountants come in!
For about a one day consultation, accountants could conduct a detailed review of the effectiveness of a client’s debtor’s management system which would make a significant contribution to the reduction in debtors’ days outstanding. For a business with credit sales of $1 million per annum this equates to average daily credit sales of $2,739. If that business had debtors representing 56.4 days outstanding, this would mean that $154,520 was tied up in debtors. If the debtors’ days outstanding could be improved by 10 days, this would generate a cashflow benefit of $27,390. I suspect that your clients would be very happy to achieve that sort of cashflow improvement.
The key areas to be reviewed in a Debtors Management System Due Diligence Review include:
- procedure for opening of accounts.
- issuing a new customer letter including terms of trade agreement and retention of title agreement.
- systems to follow up receipt of signed terms of trade agreement and retention of title agreement from the customer.
- implementation of appropriate systems for the registration of a customer on the Personal Property Securities Register.
- review of the system to ensure that tax invoices are being prepared and dispatched promptly.
- review of debtors monitoring procedures including the use of digital monitoring to improve debtors’ days outstanding.
- system to show the client’s team how to calculate debtors’ days outstanding so that your client is regularly monitoring this figure.
- guidance on how to implement debtors’ reduction strategies.
The debtors’ management process will be significantly enhanced if your client agrees that you can produce a Customised Debtors Systems’ Manual for the business. This will give the persons involved in the credit sales and debtors process the benefit of having a written system to guide them in their work.
ESS BIZTOOLS has developed a complete Debtors Management Package and an SME Debtors Systems’ Manual so that accountants do not have to “recreate the wheel” to play an important role in the reduction of debtors for your small/medium enterprise clients which hopefully, when combined with the government’s Ombudsman discussions with big business and government departments, will contribute to Australia losing the dubious distinction of having the highest debtors’ days outstanding figure for 80 countries.
For more information please go to www.essbasip.com.au