Tax debt transparency laws are here (well almost)...

The government in a bid to increase transparency of tax debt and to provide a true picture of credit worthiness of businesses has released exposure draft legislation for consultation that will allow the Tax Office to disclose business tax debts to credit reporting bureaus where the businesses have not effectively engaged with the ATO to manage their debt.

For most businesses that pay their tax bills as and when they fall due, this is not of concern but for those entities that have ABNs with tax debts of over $10,000 overdue for more than 90 days, this is about time they get their tax affairs sorted and managed.

One of the first signs of a business not being able to manage its finances is when it starts falling behind on paying its tax debts so this is a good piece of legislation for small businesses who need to continually look for new business but don't always have enough information to determine if a new client is creditworthy or not. This law will provide useful information to businesses that are proving credit to new customers or are increasing the credit limits of existing customers.

For those businesses that do the right thing, they need not worry. Those that try and take unfair advantage by not paying their debt and using the money in their business instead, be aware!

By Suresh Rajani

How to reduce your debtor amount and days?

CLIENT QUESTION:
My debtors amount and days are growing. What should I do?

OUR ANSWER:
I have seen lots of businesses who make the mistake of focussing on increasing their sales but showing no urgency in collecting their money from customers (debtors). Remember you are in the business of supplying whatever it is you supply and not in the business of lending your money to finance your debtors' businesses.

The first thing that you need to do is change your attitude towards debtors. Your attitude should revolve around the thoughts "Its my business so the debtors should play by my rules" and "The money they are not paying is my money and I should not be afraid or embarrased to ask for it."

Once you have psyched up with the attitude above you should then develop a debtor policy that revolves around:

1. Having a standard number of days in which all invoices should be paid. Do not under the pressure to make more sales increase the standard payment terms. Remember - your business your rules.
2. Tracking your debtors. Keep a track of the invoices and if an invoice has not been paid a day before the due date, give the debtor a courtesy reminder that their invoice is up for payment the following day.
3. Changing the sales terms to cash payment right upfront if a customer has not previously paid on time before.

ANSWERED BY SURESH RAJANI

If you want to move your business in the right direction give Suresh Rajani a call at 08 8372 7837. 

Suresh Rajani is the Business Leader at Tax First - an accounting and business advisory firm located in Wayville, South Australia.