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Accountants increasingly exposed to bad debts, says insolvency regulator

Accounting firms are increasingly at risk of being owed bad debts by business clients who go under, the Australian personal insolvency regulator has found.

Business Jotham Lian 14 October 2020
— 2 minute read

The Australian Financial Security Authority (AFSA) has marked accountants as one of six common businesses that are highly exposed to trade credit debt, with new statistics revealing that such debts are now almost on par with bank debt.

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In the September quarter, the AFSA found that people in businesses who entered into a personal insolvency owed 32 per cent of their debts to another business, sole trader or individual.

Bank debts, in comparison, accounted for 35 per cent.

AFSA’s chief economist and statistician, River Paul, said the new figures were significant, noting that bank debt was frequently secured, while trade credit was often not, increasing the risk for accountants or other businesses that provide goods or services on credit.

The other five types of businesses that the AFSA believes are at risk include lawyers; transport; equipment rental and leasing; commercial leases and real estate; and internet; communications and marketing.

“Businesses, sole traders and individuals are just as exposed as banks,” Ms Paul said.

“They have a similar exposure to debts owed by people in business who have entered into a personal insolvency. And the gap between these sources of credit has fallen this year.”

The Institute of Public Accountants general manager of technical policy Tony Greco said it was unsurprising to find accountants making the high-risk list, noting that many firms were tied to the success of their small-business clients.

“[Accountants] have a lot riding on the [small-business] sector surviving the financial shock that COVID has created. Accountants want to see their clients make it to the other side of the crisis, but the reality is that not all businesses will make it,” Mr Greco told Accountants Daily.

“Accountants have spent lots of time helping clients gain access to vital federal government assistance, namely the cash flow boost and JobKeeper, since the height of the crisis and may never see clients eventually pay for these services, especially if the client’s business is no longer viable.

“[There are] no rivers of gold for many doing this important work.

“Some of our members stick to their clients like glue through thick and thin, so we expect accounting firms to have to write off some debts when the eventual fallout from business failures begins to surface.”

AFSA deputy chief executive Gavin McCosker has urged businesses that provide goods or services on credit to consider their risks in the current economic climate.

“When combined with data released about delayed payment times and changes in trade credit insurance over recent months, AFSA’s data provides a significant call out to businesses right across the country,” Mr McCosker said.

“All business transactions carry an element of risk, but there are ways for organisations to protect themselves and their interests.

“Businesses should consider whether the Personal Property Securities Register (PPSR), the Australian government’s register of security interests, can provide peace of mind in these uncertain times.”

Accountants increasingly exposed to bad debts, says insolvency regulator
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Jotham Lian

Jotham Lian

Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.

Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.

You can email Jotham at: This email address is being protected from spambots. You need JavaScript enabled to view it. 

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