Dealing with Debt
In the current economic downturn it is worth remembering that banks can be of assistance when small businesses are experiencing financial difficulties. They advise business owners to seek professional advice as early as possible. A fact sheet issued by the Australian Bankers’ Association has a number of recommendations worth considering:
Contact your bank for assistance as early as possible once difficulty has arisen, as they will be able to help you work out a repayment strategy. Talk straight with them so that they are able to understand more fully the problems you face and will be more likely able to help resolve the real issue.
Do not be tempted to simply ignore letters from banks or people demanding payment, as it will only make the situation worse. Avoid moneylenders charging high fees and interest. Always have a contingency plan to fall back on for alternative sources of income.
Small business owners should consider a number of things in anticipation of hard times, such as how exposed their business is to a downturn in the economy. They should analyse their customer base and focus their resources on the most substantial and dependable.
When the cash flow is faltering consider this action plan:
Cut down on expenses by reducing inventory. Outsource business debt by selling it through invoice discounting, which most banks are able to offer. If your business has cash on hand, such as payroll tax payments, make sure it is earning something for you by putting it into a short-term high interest bearing account. If you are going to go into debt consider an overdraft facility. This can be the right solution for businesses that have cash flow ebbs for short time frames.
The Code of Banking Practice sets out the industry’s commitments and obligations to customers in terms of its standards of practice, disclosure, and principles of conduct for all banking services. The Code also discusses what the banks can do when you are in financial difficulty such as extending the term of the loan, or changing your repayment schedule if applicable. Copies of the Code of Banking Practice are available at most banks, and through the Australian Bankers’ Association.
The Consumer Credit Code also allows for variations to loan contracts where the borrower is suffering hardship due to illness, unemployment or other reasonable cause. Talk to your bank about whether these provisions may apply in your situation, and work with them to come to a workable solution. They may refer you to a specialist team to analyse your business situation and determine an appropriate course of action. Banks should treat each case individually and not pressure any business to accept a repayment plan that does not seem workable.
The Financial Ombudsman Service is an independent complaints scheme that is free for consumers who have issues over the way the bank has handled their case. Their telephone number is 1300 780 808, or see their website at www.fso.org.au References: www.bankers.asn.au www.smallbusinessbanking.com.au
