Long gone are the days of verbal and “handshake” agreements
With liquidation rates at their highest, as well as heavily saturated building and construction industries, Australia’s Tradies are the most vulnerable they have ever been.
Over 500 builders went broke in Victoria alone in 2019*. A crazy statistic that saw thousands of unsecured creditors writing off huge amounts of money and being subject to preferential payment claw backs.
Big business bullies as well as companies phoenixing to write off debt are two large contributing factors. Companies are also growing too quick and quoting minimal margins to keep in line with competitors. Just one variation or a botched job and it creates a huge ripple and snowball effect.
Don’t get me wrong there are still numerous businesses operating without any terms of trade and purely doing the work then invoicing. However it’s impossible to be fully confident that you will get paid, regardless of the relationship. It could be the case of ‘good at the trade, bad at business’. It might be that people are too trusting or maybe they just think there is nothing they can do about it.
A handshake and someone’s word used to be binding and trusted. It’s now turned into a complete unknown with so many game players taking advantage of small business owners.
The collapse of Project Group saw multiple one man band operations write off $100K plus. It’s devastating.
The government introduced the Personal Property Security Act (PPSA) legislation in 2012 to help small businesses secure themselves should their clients go into liquidation. Unfortunately many accountants don’t even understand the protection it can give a business and regularly give the wrong information.
Correctly written and legally enforceable terms of trade can enable a valid PPS Registration to maximise the chance of being paid as well as protect a business from preferential payment claw backs should your client go into liquidation.
It’s vital that small business understand what resources are available to protect themselves and minimize exposure.
* Herald Sun 17.02.2020