ASHLEIGH MASON Congratulations - Australian Institute of Credit Management
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Volume 27, No 2
December 2019
The Publication for Credit and Financial Professionals IN AUSTRALIA
Congratulations
ASHLEIGH MASON our
2019 Young Credit Professional
l SME sector turns to non-bank lending
l Keep up with changes to the National Credit Code
l Collection and vulnerability strategies
Contents
Volume 27, Number 2 – December 2019
Message From the President 4
68
NSW: Theresa Brown, David Lee, Trent Harwood, Cameron
Chee, Shamik Paul (all Optus) and Ceyda Sert (Atradius).
Credit Management
New credit laws need to be strengthened 6
By Nick Pilavidis
2019 year in review 8
By Mike Laing
SME sector turns to non-bank lending as business owners 10
voice concerns about property security, loan rejection
and cash flow
By Peter Langham
71
Qld: Sonny Nair (Mitsubishi), Jean-Marc Nemorin
Transform your accounts receivable process to 14 (Credit Clear) and Justin Watson (Credit Solutions).
word class using best practice
By Terry Eames
Australian SMEs struggle in conditions likened to the 16
global financial crisis
By Patrick Coghlan
Consumer Credit
18
Keeping up with the National Credit Code – what’s new?
By Andrea Beatty and Chelsea Payne 74
Optimising originations: The challenges, priorities and 22 Vic/Tas: Frank Gambera (McMahon Fearnley Lawyers),
Stuart Musgrave (Equifax) and Dylan Smith (Rubix).
moving forward
By Poli Konstantinidis
Collection and vulnerability strategies; Better outcomes 26
for your customers, your staff and your organisation
Jodie Bedoya, Anna Brooks, Rosemarie Price and Nikki Dennis
Predatory loans – A buzz-phrase or a valid concern 32
for Aussie battlers?
By Clare Venema
77
Ripple effect of the new Banking Code of Practice 34
WA/NT: Enthralled wine night attendees listen to our
to Debt Collectors
presenter Angus Heida discuss the wine pairing with food.
By Georgina Wu
8 10 14 32
Mike Laing Peter Langham Terry Eames Clare Venema
79
CREDIT MANAGEMENT IN AUSTRALIA • December 2019 SA: James Devonish (Oakbridge Lawyers).
ISSN 2207-6549
34 36 42 44
DIRECTORS
Georgina Wu Nicki Hutley Andrew Spring Robert Naudi
Trevor Goodwin LICM CCE – Australian President
Julie McNamara MICM CCE – Queensland and Australian VP
Economic Update Lou Caldararo LICM CCE – Victoria/Tasmania
Rowan McClarty MICM CCE – Western Australia/Northern Territory
2020 economic outlook – low and slow 36 Gail Crowder MICM – South Australia
By Nicki Hutley Peter Morgan MICM CCE – New South Wales
Debbie Leo MICM – Consumer
Leadership & High Performance CHIEF EXECUTIVE OFFICER
Credit professionals under pressure 39 Nick Pilavidis FICM CCE
By Robyn Erskine, Jeff Hurst, Eva Tsahuridu and Tim Timchur Level 3, Suite 303, 1-9 Chandos Street,
St Leonards NSW 2065
PO Box 64, St Leonards NSW 1590
Insolvency Tel: (02) 8317 5085, Fax: (02) 9906 5686
Overview: AICM conference insolvency debate 2019 42 Email: nick@aicm.com.au
By Andrew Spring
PUBLISHER
Nick Pilavidis FICM CCE | Email: nick@aicm.com.au
Plugging loopholes 44
By Robert Naudi RITP, CA, MICM CONTRIBUTING EDITORS
NSW – Chris Lagana MICM
Qld – Carly Rae MICM
2019 National Conference SA – Lisa Anderson MICM CCE
Introduction 49 WA/NT – Jeremy Coote MICM
CCE 51 Vic/Tas – Michelle Carruthers MICM
Conference Dinner 52 EDITOR/ADVERTISING
Exhibitor booths 56 Andrew Le Marchant LICM CCE
Credit Team of the Year 60 Phone Direct 02 8317 5052 or Mob 0418 250 504
Young Credit Professional of the Year 62 Email: andrew@aicm.com.au
Faces in the Crowd 64 EDITING and PRODUCTION
Anthea Vandertouw | Ferncliff Productions
Tel: 0408 290 440 | Email: ferncliff1@bigpond.com
Around the States
THE EDITOR reserves the right to alter or omit any article
New South Wales 68 or advertisement submitted and requires idemnity from the
Queensland 71 advertisers and contributors against damages or liabilities that
may arise from material published. CREDIT MANAGEMENT IN
Victoria/Tasmania 74 AUSTRALIA is published by the Australian Institute of Credit
Management, Level 3, Suite 303, 1-9 Chandos Street, St Leonards
Western Australia/Northern Territory 77 NSW 2065. The views expressed in CREDIT MANAGEMENT IN
South Australia 79 AUSTRALIA are not necessarily those of Australian Institute of
Credit Management, which does not expect or invite any person
New Members 80 to act or rely on any statement, opinion or advice contained herein
(whether in the form of an advertisement or editorial) and neither
the Institute or any of its employees, agents or contributors shall
be liable for any opinion contained herein. © The Australian
Credit Marketplace 82 Institute of Credit Management, 2019.
JOIN US ON LINKEDIN
For advertising opportunities in
Credit Management In Australia
Contact: Andrew Le Marchant Click Here
Ph: (02) 8317 5052 EDITORIAL CONTRIBUTIONS SHOULD BE SENT TO:
The Editor, Level 3, Suite 303, 1-9 Chandos Street,
E: andrew@aicm.com.au St Leonards NSW 2065 or email: aicm@aicm.com.au
aicm From the President
Trevor Goodwin LICM CCE
National President
A
s I write the final President’s breakfasts, roadshows and seminars, and
report for this year I take time magazine articles have been very successful,
to reflect not only on how and in the 2018/19 financial year we achieved
quickly time has passed but significant growth of 6.4% in membership.
on the significant contribution the AICM We continued to boost our relevance to
has provided to the credit profession members and their colleagues through
throughout the year with our advocacy to the delivery of new training materials and
government bodies and regulators, our workshops on business fundamentals for
seminars, educational training, various credit professionals, Insolvency, Bankruptcy,
awards and our networking events and how PPSA and Hardship. We also introduced our
strongly the Institute has progressed. Education Foundation which was officially
2019 has been a year of business announced at the National Conference
uncertainly impacted by the banking and will be ramped up in 2020 to provide
royal commission, drought conditions for scholarships and training materials.
our farmers, difficulties in the retail and As an advocate for our members we
construction sectors and hardship for many provided a diverse number of formal
consumers, amongst other challenges for submissions such as our submission to assist
businesses. The year has also seen the in the passing of legislation to allow ATO
continuation of low inflation and low interest defaults to flow though to credit report
rates. bodies. A number of our submissions were
The AICM has responded to the many in partnership with other professional
challenges facing our industry in not organisations such as ARITA, AFIA and
only commercial credit but in supporting ARCA further enhancing the work we do
consumer credit professionals who are with these bodies to improve the credit and
bearing the brunt of the focus on consumer finance sectors in Australia.
protection by holding Hardship and Personal The highlight of the year was the recent
Insolvency workshops. This year the Board national conference on the Gold Coast
appointed a Consumer Director, Debbie which was an outstanding success with
Leo, to drive the consumer credit portfolio an excellent variety of topics delivered by
with support from the local Divisions engaging and highly qualified presenters
and consumer credit professionals. This covering subjects involving both commercial
new portfolio will ensure we continue to and consumer credit. Feedback from our
concentrate on servicing all members of the survey on the conference was very positive.
Institute and attract new members from the It was very pleasing to see a record number
consumer sector as well as the commercial of delegates attend the conference to upskill
credit area. Our inclusion of consumer- and learn about the latest trends, processes,
specific sessions at the recent national technology and legislation, while enjoying
conference were of high quality and well the company of old and new friends. We
supported by delegates. thank our conference and Credit Team of
Throughout this year our networking the Year sponsor Equifax, Presidents dinner
events, the education workshops, webinars, and YCP sponsor, illion, the exhibitors,
4 CREDIT MANAGEMENT IN AUSTRALIA • December 2019
From the President
aicm
and importantly the delegates who make
this event the largest gathering of credit
professionals in Australia.
In 2019 we saw growth in the
participation for our awards and events
including YCP, Credit Team of the Year,
WINC, and the Pinnacle Awards, recognition
of our new Certified Credit Executives and
the awarding the CCE Dux and Student of
the Year awards. The last official event for
the year were the Pinnacle awards which
highlight the leaders and high achievers in into the future and to continue the growth
our industry. in our membership base and to maintain our
I congratulate our 2019 award winners: strong financial position.
z YCP – Ashleigh Mason To all members and their colleagues,
z CTOY – AGL please stay involved in your local division
z CCE Dux – Leanne Farrugia events and attend our seminars, toolbox
z Student of the year – Judith Riley and network evenings. It is a great way to
z Presidents Trophy – Victoria/Tasmania network with fellow credit professionals
z The various Pinnacle award winners in and learn about the latest developments in
each State credit.
I also congratulate the members Volunteers are the heart of the Institute
who obtained their Certificates III or IV, at local division level and I thank them all for
Diploma in Credit Management and CCE their contribution throughout the year. I am
qualifications during the year, and members also immensely grateful to our partners and
who were awarded with Life membership supporters who play a crucial role within the
and became a Fellow of the Institute. 2019 Institute.
also saw many new members joining the Thank you also to my fellow Board
Institute and I welcome them to the AICM members and the National office team
and hope they find their membership for their efforts and enthusiasm. Your
extremely worthwhile and I encourage them commitment is greatly appreciated.
to get involved in their local divisions. In closing on behalf of the Board and
2020 promises to be a year of growth for staff I wish all members and their families
the Institute as we enhance our standing in a very Merry Christmas and a happy, safe
the consumer credit sector amongst other and prosperous New Year. We look forward
initiatives such as the Education Foundation. to working and engaging with you in 2020
2020 will not be without its challenges to make the year a special one for all of us
and the Board will meet these challenges involved in this industry.
positively and early in the new year will
meet to further develop and implement our – Trevor Goodwin LICM CCE
strategies and pillars to ensure our relevance National President
December 2019 • CREDIT MANAGEMENT IN AUSTRALIA 5
Credit Management
New credit
laws need to be
strengthened
The Australian Institute of Credit Office can disclose businesses’ tax
Nick Pilavidis, CEO,
Management (AICM), alongside the debt information to registered credit
Australian Institute of Australian Restructuring Insolvency reporting bureaus (CRBs) under certain
Credit Management and Turnaround Association (ARITA), criteria. The business must have an
the Australian Finance Industry Australian Business Number (ABN), it
Association (AFIA) and the Australian must have one or more tax debts of at
Retail Credit Association (ARCA), least $100,000 overdue by more than
welcome the passage through 90 days. Also, the business must not
parliament of the Treasury Laws be engaging with the ATO to resolve
Amendment (2019 Tax Integrity and the debt. It’s important to understand
Other Measures No. 1) Bill 2019. the ATO would only disclose this
AICM and other industry bodies information as a last resort, after
have long advocated for the unsuccessfully seeking to engage the
introduction of laws that ensure critical business over a lengthy period.
historic information is available to allow As the legislation stands, tax debt
businesses to understand whether the information will be removed from the
entities to which they extend credit record if they do engage with the
have the capacity and character to ATO. On a practical level, this means
service repayment of their debts. businesses with a tax debt could repay
We provided a joint submission to a very small amount, even $20, and
the federal government during the be removed from the record. They
consultation paper that clearly sets out could also lodge a dispute with the tax
our position on this. office regarding the nature of the debt
We would now like to see the law and also be removed from the record,
go even further to ensure the small which seems to be counter to the spirit
number of businesses that don’t pay of the legislation.
their tax debts are not given an unfair Additionally, if a business’s tax
advantage, and to ensure businesses debt is disclosed and the information
are fully informed when making credit is subsequently removed, it’s not safe
decisions. to assume the debt has been cleared.
Under this amendment to the tax The entity may have entered into a
Nick Pilavidis integrity laws, the Australian Taxation payment plan or lodged a dispute.
“AICM and other industry bodies have long advocated for the introduction of laws
that ensure critical historic information is available to allow businesses to understand
whether the entities to which they extend credit have the capacity and character to
service repayment of their debts.”
6 CREDIT MANAGEMENT IN AUSTRALIA • December 2019
Credit Management
Also, just because a business has
a clear credit file, this does not
“For too long, businesses have been able to hide what
necessarily mean it has met its tax
obligations.
amounts to illegitimate borrowing by not paying
While we consider this legislative their tax. Initiatives that lead to the disclosure of a
amendment to be a good first step,
we believe it should be reviewed and
counterparty’s true debt position are in credit managers’
amended to make it more effective best interests and will create a more level commercial
and achieve its intended outcomes.
We urge the federal government playing field.”
to drop the $100,000 threshold to
$10,000 and to keep information
about businesses that have accrued a z Ensure businesses have access to accurately assess credit risk. This
tax debt on the record for a period of appropriately-priced credit. aligns with AFIA members’ objective
five years. Commenting on the new to finance Australia’s future by
Taking this step would: laws, John Winter, chief executive enabling small businesses to access
z Help all credit providers make officer, Australian Restructuring finance at a price that appropriately
fully-informed decisions when Insolvency and Turnaround reflects the risk to which they are
extending credit to entities that Association, notes it will mean credit exposed.
have or have had a tax debt. managers have greater access to “We believe lowering the $100,000
z Reward businesses that comply information to assess counterparties’ threshold would better achieve the
with their tax obligations and creditworthiness. policy’s objectives to enhance credit
incentivise them to continue to do “For too long, businesses have decisions for the benefit of customers
so. been able to hide what amounts to and credit providers. It would also
z Reduce risk in the business sector illegitimate borrowing by not paying encourage businesses to continue to
by lessening the likelihood of a their tax. Initiatives that lead to the pay their taxes. Importantly, it would
business suffering a loss as a result disclosure of a counterparty’s true minimise the risk of credit providers
of unknowingly extending terms to debt position are in credit managers’ extending further credit to entities
a business that has or has had had best interests and will create a more already facing financial difficulties
a tax debt. level commercial playing field,” he evidenced by the non-payment of
z Ensure businesses are not says. their tax debt,” Ms Gordon adds.
inadvertently engaging with an “It’s disappointing the $100,000 Mike Laing, ARCA chief executive
entity that is essentially trading limit was set so high. In the future, officer notes under the legislation,
while insolvent as a result of not we may go back to the federal the ATO can use the disclosure of
settling an undisclosed tax debt. government with evidence to show information and the credit reporting
z Give the business sector more setting the bar this high means system as a bargaining chip. “Allowing
confidence when trading with businesses face undue losses by information about tax debts to
small entities, which are presently running the risk of providing credit disappear is contrary to the way the
considered to be high risk when it to entities with tax debts below this credit reporting system operates in
comes to providing credit and, as amount,” he adds. Australia and around the world. This
a result, stimulate activity in the Mr Winter recommends limits the usefulness of the legislation,”
small business sector. credit managers keep a record of he says.
z Assist credit providers to instances in which they believe a In light of the legislation’s
identify new entities associated counterparty has been unable to limitations, to reduce the risk of non-
with a phoenix company given meet its obligations as a result of an payment, it’s essential for credit
information about businesses undisclosed tax debt. “This will give managers to continue to perform
with a tax debt will remain on the us the evidence we need when we go full credit assessments and continue
record. back to government in the future and monitoring creditors for signs of
z Deter unscrupulous business ask for changes,” he says. insolvency.
owners manipulating the shortfalls Helen Gordon, AFIA’s chief Businesses should be aware
of the legislation from avoiding executive officer, says its members information will start to be reported
their tax obligations. support federal government policies following royal assent, after the
z Encourage businesses with tax that give credit providers access legislation passed through the Senate
debts to engage with the ATO. to information so they can more on 16 October.
December 2019 • CREDIT MANAGEMENT IN AUSTRALIA 7
Credit Management
2019 in review
forward, while ASIC also kicked off Increased focus and cost around
By Mike Laing*
its review of its responsible lending regulatory compliance will shorten
guidance. At the start of the year it credit providers’ spectrum of
This year the Australian economy seemed certain that industry would acceptable risks. Announcing the
entered unchartered territory; need to make significant changes RBA’s October rate cut, Governor
economic and wages growth to lending processes. At the time of Philip Lowe said, “Mortgage rates are
stagnated while interest rates writing we are awaiting the outcome at record lows and there is strong
approached zero and negative of ASIC’s review to its responsible competition for borrowers of high
interest rates were not just lending guidance, but it looks like credit quality”. I agree, and I’d suggest
considered a possibility, but perhaps lenders will be asked to do better, not that most new neobank and fintech
a necessity. The finance sector has necessarily more, work. market entrants are seeking to cherry
also had to navigate the final report This year has also seen digital pick the best quality customers rather
of the Banking Royal Commission disruption, and a wave of new than target the underserved. On the
and the focus on compliance and entrants have braved the otherwise flipside, unregulated lending products
new regulation that has followed. challenging economic and regulatory (which are not subject to rigorous
The unique economic and regulatory front to take on the incumbents. 2019 lending assessments) are growing and
environment of 2019 has driven the has seen a number of newly-minted pay day lending continues to serve
agenda for participants in the retail ADI holders intending to disrupt the consumers that are less attractive to
credit industry in particular. mainstream market. These entrants risk-averse lenders.
Responsible lending has been are primed to benefit from economy- And on that note: while I hope
in the spotlight since the Royal wide initiatives such as the Consumer industry, government and regulators
Commission hearings began, and Data Right, the widespread adoption will work together to ensure 2020
headlines highlighted the need for of comprehensive credit reporting further develops the positive trends
lenders to improve their assessment and consumers’ embrace of the data- we’re seeing in the power of data to
of a borrower’s expenses and capacity driven and online retail economy. increase competition, innovation and
to repay well before the final report While some new entrants are customer experience, I also see a need
was released this year. And sure focussed on mainstream lending for all stakeholders to keep consumer
enough, early this year the final products, some mainstream lenders awareness and education in mind too.
report confirmed responsible lending have this year fixed their sights on the Low levels of data literacy mixed with
practices as a key focus point moving rapidly growing buy now pay later low levels of financial literacy creates
sector. Players in that market report a dangerous cocktail. This year, ARCA
at least 4 million customers this year members supported ongoing funding
(double the 2018 figure). It’s not clear of our consumer education campaign,
how that business model – or the CreditSmart.org.au. Over the last 12
regulation that currently only brushes months in particular the CreditSmart
it – will evolve. But it’s clear from resources and public relations
developments over the last 6 months campaign has supported customers
in particular, that more established through industry’s transition to
lenders such as Latitude, Flexigroup comprehensive credit reporting.
and even CBA are not going to let ARCA members’ continued support
newer entrants go unchallenged in for consumer education means we’ll
that market. be able to bring customers along as
Another theme that has emerged industry navigates the challenges and
through 2019 and will continue to opportunities ahead in 2020.
influence the agenda for 2020 is the
impact of the economic, regulatory, *Mike Laing
and competitive environment on Chief Executive Officer
Australian Retail Credit Association
access to credit for consumers Email: mlaing@arca.asn.au
Mike Laing sitting outside lenders’ risk appetites. Ph: 03 9863 7859
8 CREDIT MANAGEMENT IN AUSTRALIA • December 2019
LINPEPCO EMPOWERS ITS CUSTOMERS &
COLLECTIONS TEAM WITH A CLOUD-BASED
AUTOMATION SOLUTION
CUSTOMER TESTIMONIAL
BACKGROUND BENEFITS
LinPepCo is a Pepsi-Cola franchisee with 25 years in LinPepCo went live with Esker’s Collections Management
the distribution business in the USA. One of its digital solution in early 2015. Since then, the company has
transformation projects was to digitise and automate its achieved a number of impressive business benefits.
accounts receivable (AR) collections process. § Reduced DSO
Before Esker, LinPepCo relied on a largely manual process § Virtually eliminated customers in the 90-day past-due
to manage its collections. Paper was prevalent, as the team category
was tasked with printing statements and sending reminders § Freed up staff time to spend more time on strategic
by hand. “A lot of cost and manual labour went into that,” things like aging reports, contacting customers,
said the Director of IT at LinPepCo. “We knew there had to reconciliation
be a faster, more cost-effective way to help our staff collect
§ 69% increase in auto-pay customer
and our customers make payments. Esker’s Collections
Management product offered that solution.” § Improved customer experience
SOLUTION
A key goal LinPepCo wanted to achieve in implementing “Esker was perfectly compatible with what
a new solution was to utilise as few different systems we had in place and the implementation
and technologies as possible. Ultimately, it was Esker’s couldn’t have been more painless. After
automated Collections Management solution that stood just a few weeks of going live, we had
out for its robust capabilities and integration with VIP, customers and team members telling us
LinPepCo’s existing accounting system. Esker’s business
how slick the solution was.”
partnership with VIP meant a fast and seamless solution
delivery process for LinPepCo with very few technical
Director of IT at LinPepCo
resources needed to set up the solution.
“Esker checked off so many boxes for us that we
really had no reason to test other solutions. It was
perfectly compatible with what we had in place and the
implementation process couldn’t have been more painless. “All our goals have been accomplished
After just a few weeks of going live, we had customers and with Esker’s Collections Management
team members telling us how slick the solution was.” solution. Payment reminders are being
Approximately 67% of LinPepCo’s customer base (3,800 sent out electronically, our staff is
customers) is currently accessing Esker’s cloud-based more productive and proactive, and our
solution. customers are happy. Everything we were
hoping for was delivered.”
Nearly 1 in 4 customers is using the auto-pay feature,
which has proven to be a significant time-saver for both the CFO at LinPepCo
company and its customers.
www.esker.com.au
Eric Maisonhaute • +61 2 8596 5126 • eric.maisonhaute@esker.com.au
Credit Management
SME sector turns to
non-bank lending
as business owners voice
concerns about property security,
loan rejection and cash flow
The Australia business sector has lenders as being able to avoid using
Key issues that credit
reached a watershed moment property as security against new or
managers should be when it comes to small to medium refinanced loans.
aware of, drawn from enterprises and how they secure SME Growth Index research is
the results of the latest credit. conducted twice yearly by banking
For the first time, according analysts East & Partners on behalf
Scottish Pacific SME
to results of our September 2019 of national working capital funder
Growth Index Scottish Pacific SME Growth Index, Scottish Pacific. More than 1000
SMEs indicated they are more likely to owners, CEOs or senior financial staff
By Peter Langham* turn to a non-bank rather than their of SMEs across a range of industries
main bank to fund their growth. throughout Australia, with annual
This is the culmination of a five- revenues of $A1-20 million, are
year trend the SME Growth Index has surveyed.
tracked, with businesses moving away
from their banks when it comes to Growth funding intentions:
funding growth. Non-banks pass banks
The proportion of SMEs planning East & Partners had forecast that non-
to borrow from their main bank to banks would pass banks as growth
fund growth has almost halved over lenders before mid 2020, but SME
the past five years, falling from 38% in funding plans are obviously shifting
2014 to 18.3% now. quickly as the threshold has been
The proportion of businesses now crossed in 2019.
planning to turn to a non-bank for Banks have consistently lost
growth funding sits at 18.7% and has ground each round since Scottish
steadily increased over the past five Pacific’s twice-yearly Index started
years. collecting this data in 2014.
Business owners nominate the With this round’s record high
key reason for turning to non-bank preference for non-bank lending,
“Business owners nominate the key reason for turning to
non-bank lenders as being able to avoid using property
Peter Langham as security against new or refinanced loans.”
10 CREDIT MANAGEMENT IN AUSTRALIA • December 2019Credit Management
“Australian Banking
Association data released
this year indicated that
small business loan
applications to banks has
declined by one third since
2014, with respondents
indicating that a lack of
access to funding is their
key restraint to starting a
small business.”
only 2.6% of SMEs would not consider
using a non-bank lender, down from
4% last year.
Almost one in 10 SMEs don’t know
how they will fund investment and are
open to ideas.
Consistently over the past five
years, the dominant way to fund
growth has been for business owners
to dip into their own funds – this
round, it was the growth funding It’s reasonable to assume that debtor finance) – used by 77% of
choice for 83% of SMEs. some business owners are still simply respondents
This is despite other business unaware of funding alternatives to the z merchant cash advances – 23%
funding options being available that banks, however we believe there’s a z P2P lending – 10%
would allow them to save their own much larger group of business owners z Crowdfunding – 9%
funds for personal investments. who are aware of non-bank funding z Other online lending – 5%
SME Growth Index tracking but don’t fully understand how it (*This biennial question was asked
of the trend to non-bank lending works. in the March 2018 SME Growth Index
matches a finding of recent banking They are too busy to research it, and will be asked again in 2020 to
industry research. Australian Banking so put action on changing funding continue to track trends).
Association data released this year methods in the “too hard” basket.
indicated that small business loan When they can’t secure bank funding, SMEs say property security
applications to banks has declined by they just tip their own money in to is a credit turn-off
one third since 2014, with respondents fund growth. There are smarter ways The key reason for SMEs turning
indicating that a lack of access to fund long-term business growth. to non-bank lenders, according to
to funding is their key restraint to SME Growth Index findings, is to
starting a small business. Most popular sources avoid property security (21.3% of
While it’s pleasing that business of alternative finance respondents nominated this, up from
owners are increasingly aware of Of the business owners who say they 18.7% in September 2018).
options outside a property-secured are using non-bank funding options This negativity or concern around
bank loan, the SME sector still has a to fund growth, the most popular property security comes in light of
long way to go in taking advantage of alternative finance products* are: Australia’s less than buoyant property
the alternatives available to them. z invoice finance (also known as market over the past 18 months, as ➤
December 2019 • CREDIT MANAGEMENT IN AUSTRALIA 11Credit Management
well as uncertainty about whether the misconduct in the banking sector was because business owners now expect
housing price correction has run its the reason they use non-bank lenders fast approval by non-banks and are
course. to fund their growth. finding other factors to induce them
It is also on the back of Census The impact of the Royal to look beyond the banks.
data that highlights a slow but marked Commission might also account for Looking at the issue of property
decline in levels of home ownership the significant increase in SMEs citing security, the SME Growth Index
since the early 2000s. a lack of bank appetite to provide findings highlight a real conundrum.
This is an interesting trend, them credit. Business owners are increasingly
highlighting that Australia’s future This was the key reason 6.9% of aware of options beyond the family
entrepreneurs, especially those based respondents gave for turning away home to secure business funding.
in Sydney and Melbourne where the from bank-based borrowing – a They also clearly state that it’s their
property market has taken the biggest proportion which has doubled from preference to not use property as
hit, must look beyond the family home 3.2% last year. security for business lending.
or their other property to fund the One in five businesses say they And yet, the statistics also show
growth of their businesses. look to non-bank lenders to avoid that many are still not looking beyond
Repercussions from the Banking banks’ onerous regulatory and property. According to SME funding
Royal Commission are still resonating compliance requirements. expert Neil Slonim of theBankDoctor,
with the small business sector and Almost one in five are attracted by SMEs have a lack of understanding
formed another key reason SME fast credit approval turnaround times about pricing for risk. He says it’s also
owners gave for turning to non-bank and capital being available quickly. a matter of being unwilling or unable
lenders. Almost one in 10 (8.8%) said This figure has fallen substantially to act on their “no property security”
Royal Commission disclosures on from previous rounds, perhaps preference.
“Repercussions from the
Banking Royal Commission
are still resonating with
the small business sector
and formed another key
reason SME owners gave
for turning to non-bank
lenders. Almost one
in 10 (8.8%) said Royal
Commission disclosures
on misconduct in the
banking sector was
the reason they use
non-bank lenders to
fund their growth.”
12 CREDIT MANAGEMENT IN AUSTRALIA • December 2019Credit Management
“It’s food for thought for credit managers to discuss with
This issue of lack of understanding
is one that ASBFEO’s Kate Carnell,
jointly with Scottish Pacific, is seeking
to address via the Business Funding
business owners: are they funding their business in a way
Guide initiative (see section below). that optimises cash flow? Do they have the right advisors
SMEs expecting to grow, but in place to help them find the right funding and to guide
employing fewer staff
The September 2019 SME Growth
their business growth?”
Index highlights useful information
for credit managers about the typical
Australian SME with $1-20m revenue. deteriorated for one in five SMEs, with owners: are they funding their
This average SME is: 7.3% saying it is significantly worse business in a way that optimises cash
z Staying in business longer but and 12.3% saying it is worse than the flow? Do they have the right advisors
employing fewer full- time staff previous year. in place to help them find the right
than five years ago (average FTE The percentage of SMEs reporting funding and to guide their business
headcount now is 68, down from significantly worse cash flow has growth?
72 last year and 88 in 2014). doubled since March 2018. In addition, The fact that one in five businesses
z Expecting modest revenue growth fewer SMEs are reporting significantly is struggling with cash flow because
of 2.7% for the remainder of 2019. better cash flow (22.3%, compared to they’ve had business funding rejected
z Not wanting to use personal 26.8% in March 2018). is a massive wake up call to SMEs and
property to fund their business For the total SME market, there their advisors to make sure they are
(yet seven out of ten continue to has been a 10-percentage point fall funding their business in a way that
do so). in SMEs who report their cash flow is optimises cash flow.
better or significantly better, falling Scottish Pacific in partnership
Loan rejection leading to cash from 68.9% a year ago to 59.4% this with the Australian Small Business
flow concerns round. and Family Enterprise Ombudsman
This round of the SME Growth Index At the other end of the spectrum, this year released a comprehensive
found that increasingly businesses are a year ago one in ten SMEs said cash independent guide outlining a wide
struggling to meet tax payments on flow was worse or significantly worse range of funding options suitable for
time and are unable to take on new – now almost one in five are saying so. different small business needs.
work due to cash flow constrictions. For growth SMEs, almost twice as The Business Funding Guide,
Business owners consistently name many as in H1 2018 say their cash flow targeted at advisors such as
government red tape and compliance is worse or significantly worse (21.2%, accountants, brokers and book-
as their greatest cash flow issue up from 12.3%). keepers, and the FitsME Guide, its
(nominated this round by almost The impact of poor cash flow short companion for businesses, are
three-quarters of respondents). on the Australian economy is both available as free downloads.
More than a quarter of SMEs considerable. In 2018 East & Partners We’d encourage all credit
(27.8%) say they have difficulty extrapolated that this issue costs the managers to download the guide and
meeting tax payments on time. This SME sector more than $235 billion familiarise themselves with it.
has crept up from 24.8% 18 months annually in lost revenue.
ago. If business owners don’t find new
Only one in ten SMEs say they ways to deal with perennial cash flow
are on top of cash flow. More than issues, Australia’s growth potential will *Peter Langham
Chief Executive Officer
one in five SMEs had cash flow issues continue to be constrained. langhamp@scottishpacific.com
due to a loan being declined, and a Ph: 1300 209 417
similar proportion were unable to take Business Funding Guide to help Scottish Pacific is Australasia’s largest
on new work because of cash flow SMEs find the right finance fit specialist working capital provider, helping
problems. A business struggling with cash flow thousands of business owners with the
working capital they need to succeed.
SMEs – whether they are growing, can only stretch working capital so far Scottish Pacific prepared this article from
stable or declining – have flagged before something has to give. excerpts of their twice a year SME Growth
Index research. To download the latest Index
that their cash flow woes are It’s food for thought for credit or request previous Index research please
increasing. The cash flow situation has managers to discuss with business visit www.scottishpacific.com/news/research
December 2019 • CREDIT MANAGEMENT IN AUSTRALIA 13Credit Management
Transform your
accounts receivable
process to word class
using best practice
In the 18th century, invoices were So how does a business actually
By Terry Eames*
penned with quills and pots of ink. In build or strengthen relationships
the 19th century, they were scrawled through Accounts Receivable? The
out with fountain pens. During the first step is the biggest, and it requires
space race, they were scribbled with us to rethink the entire process. No
ball points, and over the last fifty more should businesses simply issue
years, they’ve been pecked out on invoices with an inefficient, manual,
keyboards – first on typewriters, and and paper-based approach that is
then on computers. fundamentally the same as it was
But aside from the tools used, hundreds of years ago.
the fundamental act of Accounts Instead, B2B accounts should
Receivable – a department as old as be built on the ease and simplicity
business itself – hasn’t changed for that has redefined the B2C world. By
hundreds, if not thousands of years. giving enterprise customers access
This is bad for business. Why? to all their accounts information
Because it’s a huge missed opportunity. through a self-service portal, they’re
Today, the process of issuing empowered to take control of billing
and fulfilling invoices is largely at their own time and on the device of
transactional. It lacks a human their choosing.
element. The process is one we all While convenience is a key benefit
know well – a business or service of such an approach, another is
provider issues an invoice, and then clarity. By removing the guesswork
waits for (or chases) payment. But around when invoices are due, the
this process, if done well, is actually a status of disputes and orders-on-
prime opportunity to build new client hold, customers no longer need to
relationships and strengthen existing spend hours confirming and following
ones. Sadly, almost all Australian up. They can focus on running their
businesses are missing this, and it business and, ultimately, placing more
comes at their own detriment. orders.
“No more should businesses simply issue invoices
with an inefficient, manual, and paper-based approach
that is fundamentally the same as it was hundreds of
Terry Eames years ago.”
14 CREDIT MANAGEMENT IN AUSTRALIA • December 2019Credit Management
“...more important for a
business in the long term
is that moving away from
the old approach builds
customer loyalty... First and
foremost, it eliminates the
hassle and uncertainty of
the old system where Credit
Managers are constantly
issuing copy invoices or
chasing payment.”
Transforming Accounts Receivable accounting systems – all parties know then enables the tedious and timing
comes down to meeting your where they stand. This removes the consuming tasks to be automated.
customers when and where they frustration and confusion that can From there, cash flow improves by
want to be met. Consider a busy sour customer relationships. giving clients all the information
salon owner or a pharmacist. During Further, a transformed Accounts they need to pay invoices on time,
‘office hours’ they’re too busy doing Receivable – built on a consumer-like reducing days outstanding and orders
what they do best to follow up on self-service portal – also enables the on hold. Finally, it provides customers
the status of their accounts. The automation of back office functions with a digital experience, delivered
traditional manual approach to that allows Credit Managers to focus through the cloud, so they can
Accounts Receivable means invoices on building relationships and driving access the information whenever and
can slip through the cracks, putting value through the business. In an era wherever they need to. All this gives
them in arrears, and forcing their where many enterprises are looking your customers a significantly better
future orders to be placed on hold. to offshore accounts roles, sacrificing experience, one that builds loyalty.
This frustrates all involved – the customer service quality in a trade- After all, if your clients like doing
client, the credit manager, the sales off for fiscal savings, a re-imagined business with you, they’ll do more
team – and results in hours of follow Accounts Receivable platform business with you.
ups that the client would rather use enables Credit Managers to work Sticking to the old way of
servicing their customers, that the more efficiently while simultaneously managing Accounts Receivable —
credit manager would rather use nurturing the relationships the the same ideas and processes that
adding value to the business, and business relies on for revenue and have not changed for centuries —
that the sales team would rather use cash flow. means missing opportunities. This
finalising sales. Good luck nurturing anything with department can be so much more.
In practice, this means having an accounts team based in another It’s time for businesses in Australia to
software that enables you and your country, thousands of kilometres widen their perspectives and see the
customers to step back from the away. potential this change can bring.
time consuming and annoying old But perhaps more important for Accounts Receivable can be so
way of doing Accounts Receivable a business in the long term is that much more than ones and zeroes –
to one that streamlines the process moving away from the old approach with the right technology, it can also
and provides the analytics you need builds customer loyalty. How? First be hearts and minds.
for your business. By enabling clients and foremost, it eliminates the
to pay invoices online, have accounts hassle and uncertainty of the old
*Terry Eames MICM
direct-debited, and see all relevant system where Credit Managers are Director Sales and Partnerships,
account information online – with constantly issuing copy invoices or SurePayd
Ph: 0414 568 902
the ability send invoices via email, chasing payment. It centralises all this Email: terry.eames@surepayd.com
SMS or even directly into the client’s work into one simple location, and www.surepayd.com
December 2019 • CREDIT MANAGEMENT IN AUSTRALIA 15Credit Management
Australian SMEs
struggle in conditions
likened to the
global financial crisis
Economic stats offer a telling Global Financial Crisis. Court actions
By Patrick Coghlan*
snapshot of Australia’s big businesses (brought by creditors when debtors
and industries, but it’s often small default) have increased 8.8 per cent
businesses – the backbone of our year-on-year and payment defaults
economy – that are forgotten. are also up 13 percent year-on-year.
As a result of our trying economic This combination of adverse data
climate, companies are struggling to indicates the worst may be yet to
get paid and will continue to fail. Our come for small businesses across the
Q3 Small Business Risk Report, which entire country, as the state-specific
collates data from 26 unique sources, data suggests:
including ASIC, ABR, AFSA, courts z New South Wales: Court actions
and debt collectors, paints a worrying increased 63 percent over the last
picture for the future of Australia’s quarter
SMEs. This is the data that’s being z Queensland: Court actions
neglected, so it’s more important increased 25 percent over the last
than ever that small businesses pay quarter
attention and strive to protect their z Western Australia: Court actions
cash flow. increased 21 per cent over the last
The latest Small Business Risk quarter
Review data suggests that the number z Victoria: Court actions showed
of Australian SME insolvencies has a marginal decrease – down two
increased 20 percent over the last percent over the last quarter.
quarter – up five percent year-on-year. However, the decrease comes
after four consecutive quarters of
Our economy is worsening, growth including a record number
and no state is exempt of court actions recorded in Q2
Administrative insolvencies are 2019.
almost at a level reflective of the All industries are feeling the pressure.
“The latest Small Business Risk Review data suggests
that the number of Australian SME insolvencies has
increased 20 percent over the last quarter – up five
Patrick Coghlan percent year-on-year.”
16 CREDIT MANAGEMENT IN AUSTRALIA • December 2019Credit Management
“The Australian economy The national quantity of insolvencies
relies on small businesses,
which means the impact
8000
YOY%: 5%
6604
of payment defaults and 6000
5393 5683
court actions is wide- 4770
4217
4770
reaching, affecting millions 4000
of everyday workers. Small
2000
businesses will struggle
to grow and make new 0
investments, as debtors Q2 Q3 Q4 Q1 Q2 Q3
pay more slowly (or not at 2018 2018 2018 2019 2019 2019
all) and suppliers push for
faster payment.” Q3 percentage change in the number of court actions,
by industry
40%
The construction industry’s growth
has significantly slowed, the property
market has turned, and brick-and- 21%
mortar retailers continue to struggle 15% 13% 12%
to meet the rise of ecommerce. Even
then, consumers are reluctant to
spend big in a bid to limit their credit
and save in preparation for the festive
Construction Professional, Retail Manufacturing Wholesale
season. Scientific and trade
Technical Services
These are uncertain times
The Australian economy relies on
small businesses, which means the result was a significant downturn in lightly: the Christmas festive period
impact of payment defaults and spend across B2B and B2C. could also be make-or-break for
court actions is wide-reaching, many. Thankfully, there’s no need to
affecting millions of everyday Relief isn’t on the horizon – yet go into the New Year blind-sided. A
workers. Small businesses will We tend to look at court action range of innovative preventative risk
struggle to grow and make new figures as a ‘canary in a coal mine’; analysis tools are available to help
investments, as debtors pay more as the numbers increase – and businesses secure their cash flow
slowly (or not at all) and suppliers businesses lose the certainty of and navigate through these tricky
push for faster payment. being paid by debtors – so too, economic times.
Risk is integral to growth, but do the numbers of insolvencies.
people and businesses operating in Unfortunately, conditions are likely
2019 are understandably reluctant to get worse for industries like
to take on risky customers. The retail, construction, property or
Federal and NSW elections, in manufacturing before they get *Patrick Coghlan MICM
particular, saw businesses enter a better. CEO
CreditorWatch
state of holding – refraining from The detrimental impact on Ph: 1300 50 13 12
spending, hiring or investing. The Australian SMEs should not be taken www.creditorwatch.com.au
December 2019 • CREDIT MANAGEMENT IN AUSTRALIA 17Consumer Credit
Keeping up with the
National Credit Code
– What’s new?
Increased ASIC powers, design and distribution obligations and a new
EDR scheme are all changes to the regulation of credit in Australia over the
past 12 months. There is great change in the consumer credit space post the
Banking Royal Commission.
By Andrea Beatty and Chelsea Payne*
There have been a number of product if ASIC is satisfied that
significant updates in consumer the financial product has resulted
credit over the past 12 months, in, will, or is likely to result in
many of which were enacted as significant detriment to retail clients
a result of the Royal Commission or consumers. For the purposes of
into Misconduct in the Banking, the product intervention power, a
Superannuation and Financial ‘financial product’ is defined to be
Services Industry. This article an ASIC Act financial product, which
will provide you with a high-level includes credit products.
overview of the main changes to the For the NCCP Act, the power
National Consumer Credit Protection applies to all products that may be
Act 2009 (NCCP Act) to allow you provided by a person in the course
and your business to be up to date of engaging in a credit activity or
on changes. proposed credit activity, such as
credit contracts, mortgages and
Andrea Beatty ASICs Product Intervention consumer leases. Amendments to
Power the Corporations Act enable the
The concept of a product Corporations Regulations or ASIC
intervention power for ASIC was to declare products to be ‘financial
introduced by the Financial System products’ for the purposes of
Inquiry’s Final Report in December the product intervention power.
2014, as a tool of last resort or pre- However, the amendments to
emptive measure where there is the NCCP Act do not contain an
a risk of significant detriment to a equivalent provision.
class of consumers. The Treasury ASIC is required to consult with
Laws Amendment (Design and affected persons prior to making the
Distribution Obligations and Product product intervention order, which
Intervention Powers) Bill came into ASIC has been doing by way of
force on 5 April 2019. releasing consultation papers with
From 6 April 2019, ASIC has the draft legislative instruments.
power to make orders requiring a On 9 July 2019, ASIC released
person to not engage in specified Consultation Paper 316 (CP 316)
Chelsea Payne conduct in relation to a financial which outlines their proposal to use
18 CREDIT MANAGEMENT IN AUSTRALIA • December 2019Consumer Credit
“For the NCCP Act, the
power applies to all
products that may be
provided by a person in
the course of engaging
in a credit activity or
proposed credit activity,
such as credit contracts,
mortgages and consumer
leases.”
prohibit issuers of CFDs providing
certain inducements to retail clients
to open a CFD trading account or
trade in CFDs with the issuer.
On 1 October 2019, ASIC released
Consultation Paper 324 (CP 324)
which outlines their third proposed
use of the product intervention
power in relation to add-on
financial products sold by caryard
intermediaries. The proposed draft
legislative instrument intends to
introduce a deferred sales model, as
well as a number of other additional
obligations including an online
consumer roadmap.
Design and Distribution
Obligations
their product intervention power for regulating is not in itself a financial The new design and distribution
the first time to address the significant product under the ASIC Act, the obligations require offerors (issuers
consumer detriment arising from case is scheduled for a hearing on 30 and certain sellers) of financial
some short term lending models. On March 2020. products intended for retail clients
12 September 2019, ASIC registered On 22 August 2019, ASIC released to consider the intended clients of
a legislative instrument prohibiting Consultation Paper 322 (CP 322) their products, design products to
credit providers and associates from which outlines their second proposed be appropriate for their intended
providing short term credit and use of the product intervention clients and to take steps to ensure
charging for additional or collateral power in relation to over-the-counter that products are not offered to
services. (OTC) binary options and Contracts persons outside their target market.
This legislative instrument is for Difference (CFDs). The proposed The obligations apply to financial
currently being challenged in the draft legislative instruments will ban products that are offered under a
Federal Court by Cigno Pty Ltd, one the issue of OTC binary options to disclosure document or Product
of the two businesses targeted by retail clients, prohibit the issue of Disclosure Statement, or which are
ASIC in the development of the order. CFDs to retail clients that do not issued to retail clients. As with the
Cigno argues that the model ASIC is meet prescribed conditions and product intervention power, the ➤
December 2019 • CREDIT MANAGEMENT IN AUSTRALIA 19Consumer Credit
“If ASIC is satisfied that a design and distribution received 73,272 complaints, a
significant increase on the 55,000
obligation has been contravened, it may order a complaints estimated and the number
of complaints received from the
regulated person to not engage in specified conduct former EDR schemes in the previous
in relation to retail clients. However, prior to making year.
AFCA’s powers are similar to those
such an order, ASIC must hold a hearing and allow any under the previous schemes. However,
there are a number of differences.
interested person to make submissions...” AFCA has an increased monetary
limit of $1 million and a compensation
cap of $500,000 for most non-
design and distribution obligations financial situation and needs of the superannuation disputes. There are
apply to ASIC Act financial client. Although this obligation is no monetary limits and compensation
products, meaning they also apply phrased as if an offeror identifies a caps for disputes about whether a
to credit facilities. target market given particular product guarantee should be set aside where
The objective of the new specifications, in practice offerors it has been supported by a mortgage
obligations is to assist consumers to will need to identify their target or other security over the guarantor’s
obtain appropriate financial products retail clients at the outset and then primary place of residence. These
by requiring issuers to consider their design the financial product to be increased monetary limits have
target market in the design, market appropriate to those clients. contributed to the $185 million in
and distribution of financial products. If ASIC is satisfied that a design compensation awarded to consumers
The key obligations for regulated and distribution obligation has been in the first 12 months of operations.
persons are: contravened, it may order a regulated AFCA has also relaxed the
z for financial product offerors, person to not engage in specified definition of small business, so that
to prepare a ‘target market conduct in relation to retail clients. businesses with fewer than 100
determination’ in relation to a However, prior to making such an employees at the time of the act or
product, which identifies the order, ASIC must hold a hearing and omission by the financial firm that
class of persons the product is allow any interested person to make gave rise to the complaint can access
directed towards, limitations on submissions (unless any delay in AFCA. Although small business
the product’s distribution and making the order would be prejudicial claims will not involve NCC-regulated
conditions requiring a review of to the public interest, in which case credit, credit providers and credit
the target market determination; ASIC may make a 21 day interim assistance providers should be aware
z to not engage in any retail order). of their obligations towards small
product distribution activity businesses. In its first twelve months,
unless and until a target market AFCA AFCA received 3,869 complaints from
determination has been made; The Australian Financial Complaints small businesses, primarily relating
z to take reasonable steps to Authority (AFCA) began operations to misleading product or service
ensure that a financial product as the sole financial services external information.
is distributed consistently with dispute resolution (EDR) scheme on Similar to the previous EDR
its target market determination; 1 November 2018, replacing the Credit schemes, there is no clear right to
and and Investments Ombudsman (CIO), appeal non-superannuation related
z to notify ASIC upon becoming Financial Ombudsman Service (FOS) AFCA determinations. Although
aware of significant dealings and the Superannuation Complaints appeal rights have not changed since
in a financial product that are Tribunal (SCT). the previous scheme, a number of
inconsistent with the target market In its first 12 months, AFCA issues are raised. Unlike the previous
determination.
The target market determination “In its first 12 months, AFCA received 73,272 complaints,
must be made so that if the product
is issued or sold to a retail client in a significant increase on the 55,000 complaints estimated
accordance with the target market
determination, the product is
and the number of complaints received from the former
consistent with the likely objectives, EDR schemes in the previous year.”
20 CREDIT MANAGEMENT IN AUSTRALIA • December 2019You can also read
