Not keeping on top of tax is flirting with disaster. Here’s some handy advice to decrease bad debt and increase cash flow.
Brokerage owners with cash flow problems, take note.
It’s time for SMEs to take action, says Roger Mendelson, CEO of Prushka.
The ATO is chasing about $18 billion in debt and small business account for nearly 60% of outstanding debt, a recent report indicates.
“Not paying ATO debts is a dangerous game,” says Mendelson. “The reason being, the ATO have powers far greater than other business creditors.”
“For starters, overdue tax is subject to penalty interest rates which are higher than standard bank interest (currently 9.59%) and the ATO interest is not tax deductable – whereas bank interest is.”
If the tax debt against individuals exceeds $5000, the ATO has a policy of proceeding to bankruptcy even when it may not be commercially viable to do so, adds Mendelson.
“The reason being it then effectively passes the power to the trustee in bankruptcy to flush out any assets which have been improperly disposed or may form part of the bankrupt estate,” he says.
Mendelson has the following tips for SMEs to decrease bad debt and increase cash flow:
It’s time for SMEs to take action, says Roger Mendelson, CEO of Prushka.
The ATO is chasing about $18 billion in debt and small business account for nearly 60% of outstanding debt, a recent report indicates.
“Not paying ATO debts is a dangerous game,” says Mendelson. “The reason being, the ATO have powers far greater than other business creditors.”
“For starters, overdue tax is subject to penalty interest rates which are higher than standard bank interest (currently 9.59%) and the ATO interest is not tax deductable – whereas bank interest is.”
If the tax debt against individuals exceeds $5000, the ATO has a policy of proceeding to bankruptcy even when it may not be commercially viable to do so, adds Mendelson.
“The reason being it then effectively passes the power to the trustee in bankruptcy to flush out any assets which have been improperly disposed or may form part of the bankrupt estate,” he says.
Mendelson has the following tips for SMEs to decrease bad debt and increase cash flow:
- Be proactive in your own debt recovery, do not wait until tax time or when it begins to pile up – get ahead with your finances.
- Ensure your trading terms are set up so that any debt recovery costs are covered by the debtor, this will make it far easier for you to recover money owed.
- Go through old written off accounts and refer them to a collection agency which is prepared to take them on. The longer a debt is left the harder it is to recover.
- Any business that is unable to pay their tax debts need to seek urgent help from an accountant, in order to come to an arrangement with the ATO quickly. If the position is severe, help should be sought from an insolvency practitioner.
- Directors who allow a company to trade whilst insolvent face a risk of becoming personally liable for unpaid tax debts of the company.
