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SME warning as ATO to disclose tax debt data to credit reporting bureaus

SME warning as ATO to disclose tax debt data to credit reporting bureaus

Treasurer Scott Morrison announced in MYEFO last December that the ATO plans to disclose tax debt information to credit reporting bureaus from 1st July 2017.

The ATO will disclose to credit reporting bureaus the tax debt information of businesses who have not effectively engaged with the ATO to manage their taxation debts. It is anticipated that initially this will only apply to businesses with Australian Business Numbers and tax debt of more than $10,000 being at least 90 days overdue.

The move will provide businesses with more data for credit managers to conduct a more complete credit risk assessment, however businesses captured by the criteria should be aware of potential adverse impacts this move could have on their business in two fundamental areas:

Firstly, there is the potential that the move could impact on the credit appetite of the traditional sources of funding for small and medium sized businesses, leading to challenges in accessing credit.

Secondly, businesses relying on trade credit may be adversely impacted if suppliers tighten their terms of trade as a result of the additional data they can gain from credit reporting providers. This may also be driven by reduced limits offered by credit insurers.

Considering the significant potential impact of such a move it is important for at risk business owners and their advisers to consider a plan to minimise any adverse effects of these changes.

This plan may include the following:

Get tax affairs in order

It is important that owners and advisers consider if they are affected by these changes by fully understanding their tax position and taking steps to ensure that any tax arrears are avoided or paid down. It is important that owners and advisers do not ignore the prospect of tax debt or let existing debts build as the changes may impact on their credit ratings, and thus their prospects of gaining finance.

Remain close to financiers and suppliers and revisit terms of trade with customers

The impact on trade credit could be significant, so it is important that owners and advisers keep financier and supplier relationships as strong as possible and consider plans to adapt to any tightening of trade credit provided by suppliers by also considering changes to your own terms of trade with customers and re-considering credit policies.

Reconsider credit insurance requirements to reduce risk

The additional data provided to credit reporting agencies may lead credit insurance providers to reduce limits or reprice products, so it is important that the owner and adviser revisit their requirements to ensure they are not left exposed to a higher level of trading risk.

Consider the impact on funding arrangements and look at alternative funding sources

It is uncertain how these changes will impact on the credit appetite of traditional funding sources such as banks, however there is scope that this data may impact on credit ratings and result in reduced funding levels or facilities withdrawn.

SMEs and their Advisers can ensure any impact of the changes is minimal by considering alternative sources of funding, or diversifying funding sources, so it may be prudent to explore options should funding limits be reduced or withdrawn altogether.

Invoice Finance can be a viable funding option in such circumstances. A facility can advance funds against receivables quickly (typically within 24 hours) to trade smoothly and stave off a tax situation by providing the business with better control over cash flows. It can also provide the additional funding to help reduce or retire existing debts, and in some cases the facilities can work alongside other secured facilities as invoice finance does not typically require property security. For businesses already on an ATO repayment schedule, a invoice finance facility can provide the necessary working capital to stay up to date and avoid more serious issues.

Unlike traditional funding sources, Invoice Financiers can typically take a more holistic look at each SME and make funding decisions based on growth prospects, current circumstances and the quality of their customers. Facilities can often be approved within several weeks.

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