Your InFinance Publication

FINSIA’s InFinance keeps you up-to-date and in-the-know. 

Top tips for SMEs navigating insolvency law changes

by Patrick Coghlan, CEO of CreditorWatch | 29 Apr 2020

Following the government’s recent changes to insolvency laws, business owners across the nation have been left unsure as to what it all means. 

What impact will this have on my business? What do I do in terms of next steps? Is there a hold on new legal actions for the next six months? What are the differences between the fully compliant safe harbour and the COVID-19 safe harbour?

First and foremost we must remember that we are all in this together. This is uncharted territory and businesses of all sizes need to be working together to ensure both ourselves and the economy make it out the other side as unscathed as possible. 

Unfortunately, it’s not uncommon for creditors to be approached by customers claiming that under the new legislation, they ‘have the government’s backing to not pay their bills’. 

Whilst there is a small amount of truth in this, there are a number of tools and actions that SMEs can take to ensure that six months down the line, you’re in the best position possible. 

Reassess your entire ledger

As the first point of call, reassessing your ledger is key. No doubt you’ll already have a good sense of which customers are failing or ‘hibernating’ at this point. For those customers that fall into the hibernating category, raise a red flag and put additional pressure on them to pay their bills. On the contrary, for those customers that are trading well, now is a good time to target them for credit limit increases. Showing them a little extra attention whilst times are tough should pay dividends.

Be aware of illegal phoenixing 

Post-global financial crisis, illegal phoenixing activity jumped hugely and we expect to see another spike in the next six to twelve months. Now more than ever, it is important to ensure you have a deep level of understanding of the customers you are involved with. 

Not just at a business level, but at a director level too. Do due diligence - have these individuals had companies before? Under what names? Do they plan to branch out into more companies in the future?

Assess credit limits currently on offer

Consider all of your credit limits. My advice is to halve all credit lines – or opt for Cash On Delivery – until you have a better understanding of who you are dealing with and just how sturdy their business is. With the school holidays, Easter weekend and Anzac Day having all just passed, it may be that many businesses decide to close their doors and hibernate from this point forward. 

Pick up the phone 

Maybe it’s considered old school but I cannot emphasise the importance of physically picking up the phone to have conversations with your customers. This is key to assessing how businesses are performing. Showing customers you have an interest in their successes will pay off when they continue to use you as a supplier post-COVID. Maintaining trade relationships is key whilst physical or face to face interaction is minimised. You’ll also be able to get a real sense of what people are prepared to and can actually pay. 

As I like to reiterate, 50 percent of companies that incur a payment default go into administration within 18 months and even during such unprecedented times, this statistic shouldn’t be ignored. The removal of illegal insolvent trading (at least for the next six months anyway), has created a sense of mistrust between creditors and their debtors. But, it really isn’t all doom and gloom - SMEs can still take legal action where necessary with some courts still continuing to run via the telephone or online. 

It’ll be interesting to see what position businesses take, come September 24th, when the temporary insolvency legislation ends. But, armed with these tips, tools and knowledge, navigating these strange times is certainly doable. 

My immediate advice? Don’t wait six months to register payments defaults or commence collection action. 


Share this