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By admin on December 11, 2018
We want to get to know you better
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By Sergei Tcheberiachki on December 11, 2018
Even though your bank may say it is – Finance ain’t Rocket Science
After 25 years of funding plant and equipment of every description for company owners, one thing is clear – the client has already approved the machine purchase in their own mind, they know why they are buying it, what it will earn or save them and the risks involved. Click here to read more
Whether the machine is being purchased to improve the processes, required for additional contracts, or to reduce existing outsourced subcontractor costs, the business owner has already gone through a mental “approval” process or justification behind buying the gear.
All too often this very concept and what it really means is lost on the banks or at least not heard as clearly as it needs to be.
Skin in the game
What is the relative “skin in the game” if it all goes wrong.
For the bank, any default can create a potential loss and the approving officer may be “hind sighted” on the transaction to see if they had made an error in approving the loan on the information initially presented.
For the client, it gets very personal, by that I mean they typically have their personal guarantee on the line and with that an obligation to make good any debt shortfall even if that means their need to sell other assets to clear the debt or face the prospect of bankruptcy.
So, it is fairly easy to see who has the most “skin in the game”.
Good finance is not about jumping through hoops for the bank, it is absolutely about assisting the bank in understanding why the decision has been made to buy the machine how it will be paid for and the defense trenches in place in the event it all goes “pear-shaped”. This needs to be communicated well and into “bank speak”.
If it is not, either a finance approval won’t happen or if it does it will be “roped and chained” far more than it needs to be and possibly to an extent that is not ideal for the client.
Fast Track Finance approvals
We are now seeing a huge amount of finance being done simply based on client profile and behavior where there is no need to provide financial information.
Many assets (vehicles and smaller excavators etc) up to $150,000 are being automatically approved where the client is:-
• 3 years in business
• A property owner (if not a 20% deposit is required)
• A good credit history
This fast-track finance also applies to larger acceptable assets up to $500,000 where the client is about to or has recently finalized a similar debt of say $400,000 where the new payments are up to 125% of the outgoing debt.
Other Finance approvals come down to 3 basic questions
1) Can you afford the payments?
2) If it all goes pear-shaped can you sell the gear and pay out the debt?
3) Have you always honored your commitments (historic finance report card)?
Whether the asset cost is $20,000, $200,000 or $2mil, these 3 fundamentals apply.
It is true that the larger the asset cost, the more detail is needed around these 3 questions, however, these are all in reality simply subsets of these 3 fundamental questions.
1. Can you afford the payments
Does your present trading results indicate you can pay even if the machine being financed does not contribute to any additional income/profit? If no, what tangible savings or additional incomes can be “reasonably” expected?
Are there existing debts that are currently running off which will free up cash to service the new debt or are you spending money on subcontractors which will no longer be the case with the new machine?
Is the R & M cost on the existing gear become so high that significant savings will be made by replacing it?
Has the level of existing and or new work increased to a level where the extra machine is needed?
2. What’s the fallback position if it all goes pear shaped
On the asset exposure side, if a $1mil machine is seen to have a $700,000 auction value, the perceived shortfall exposure is $300,000 on day 1. Lenders can be comfortable with this exposure if they know the client has other equipment which are either wholly owned or have “equity” in them meaning the resale value is greater than their debt.
Similarly, great comfort is obtained where the business owner has good equity in property (either personal or through the business). Let me make it clear here, they are not after a mortgage, simply the “comfort” of knowing the borrower has resources which can assist in paying any shortfall if called upon to do so.
These questions simply address “if it all goes pear shaped can you sell the gear and pay out the debt?”
3. What does your report card look like
Have you always honoured your commitments and not left any financiers or suppliers “bleeding in the alley”, does your Public credit report look fine?
There is nothing complex about the areas shown above, they are in so many ways simply common sense and definitely not “Rocket Science”.
Any savvy company owner has already addressed such matters in their own mind as a function of contemplating the purchase of the equipment. After all they are the ones who are taking the real risk and will suffer the consequences of an incorrect decision.
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By Sergei Tcheberiachki on September 21, 2018
The legislation was created to protect online privacy, by making consumers aware of how information about them is collected and used online, and give them a choice to allow it or not.
WHY ARE COOKIES AN ISSUE?
There are other technologies, like Flash and HTML5 Local Storage that do similar things, and these are also covered by the legislation, but as cookies are the most common technology in use, it has become known as the Cookie Law.
All websites owned in the EU or targeted towards EU customers (which includes countries such as Australia and New Zealand), are now expected to comply with the law
WHAT ARE COOKIES ANYWAY?
Cookies are a kind of short term memory for the web. They are stored in your browser and enable a site to ‘remember’ little bits of information between pages or visits.
WHAT IT MEANS FOR BUSINESS?
If you own a website, you will need to make sure it complies with the law, and this usually means making some changes.
If you don’t comply you risk enforcement action from regulators, which in the UK means The Information Commissioners’ Office (ICO). In exceptional cases this may mean a fine.
WHAT YOU SHOULD DO?
Compliance with the EU Law and Privacy comes down to four basic steps:
• Work out what cookies your website sets, and what they are used for.
• Obtain their consent, such as by stating a disclaimer regarding cookies with a tick option for acceptance, thus giving the end user some control.
More changes are currently going through parliament and once passed, we will provide any updates if they affect your business. These will cover – Mandatory reporting of privacy breaches – Strengthening cross border data flow protections – Penalties – Strengthening the Privacy Commissioners information gathering power etc.
WHAT YOU SHOULD DO NEXT?
Speak to your local Area Manager, we specialize in credit management and we can assist you with your review of your business operations to ensure your meet the guidelines of the EU Laws and Privacy Legislation.
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By Sergei Tcheberiachki on September 27, 2016
Talk about rubbing salt into the wounds. The preferential payment provision can be invoked by the Liquidator if the insolvent company has paid a creditor within the 6 months prior to the Liquidator being appointed.
Fortunately for the Shop fitter, the Liquidator had made a fundamental error in their documentation, so with the aid of a Solicitor the Shop fitter managed to escape the Claw Back provision. In the end the shop fitter missed out on the $140K he was still owed and had an expensive legal bill to pay – but a lot less than the $660K they were up for if not successfully defended, which would have put them out of business.
The moral of the story is, whether you’re based in Sydney’s Inner West or elsewhere in Australia, talk to EC Credit Control about how to protect your business from a costly and painful Preferential Payment claw back scenario.
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By Sergei Tcheberiachki on September 27, 2016
After 20 years Ray suddenly had been hit with two big debts at the same time. The first debtor owed him $100,000 and started to question invoices, not only recent ones, but also invoices from previous years. The second, after Ray had supplied 3 months of labour, went into liquidation owing him $80,000. This is a major hit for any small business to try and recover from and highlights the importance of protecting your cash flow with a strong set of Terms of Trade, Contracts and sound Credit Management policy to monitor your clients on 30 day payment terms. Just like insurance on your car you never know when you are going to have to rely on it.
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By Sergei Tcheberiachki on September 27, 2016
Wherever your business is located in Sydney’s Inner Western Suburbs, EC Credit Control has the resources and knowledge to help you protect your cash flow.
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By Sergei Tcheberiachki on March 2, 2016
Now whilst there were 262 Unsecured Creditors totaling a massive 6.5 million in unsecured credit, against only 44 Secured Creditors, I found myself really paying attention to the names of those secured creditors and the businesses they operate. Whilst I did recognise a couple of our clients on the Secured Creditor list there were quite a number of varied and smaller businesses which you don’t normally tend to see on a Creditors Report.
Which leads me to ask the question, Are Businesses Finally Learning How to Protect their Cash Flow with the PPSA? (Personal Property Securities Act)
What most businesses, and their professional advisors for that matter fail to realise is that no matter if you provide goods or services on credit the PPSA is there to protect their cash flow.
I would encourage all businesses owners to do a little investigation and find out for themselves how they can move from the list of 262 Unsecured Creditors to the list of 44 Secured Creditors.
“It’s your Business and Your Money”
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By Sergei Tcheberiachki on August 21, 2015
The keynote speaker, Jamie Durie through his own business experience as a landscaper highlighted some key aspects to his success and how those principles could be adopted by others. The other speaker, Craig Rispin identifies himself as a business ‘futurist’ and has made his success through predicting the climate for business in the future. He works with many large multi-nationals to plan strategies for the future.
There was a diverse range of businesses and industries represented giving all attendees the chance to interact with others. During the course of the dinner I had the opportunity to discuss our credit management products with considerable interest in our Terms of Trade documentation and our PPSA Registration service from a local solicitor, a tourist operator and a commercial property agent. The night highlighted the positive and successful growth of business in South West Sydney.
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By Sergei Tcheberiachki on July 21, 2015
I continue to work closely with David and his other advisers to create an awareness for all small business owners who provide credit to have the appropriate Terms of Trade documentation and credit plan in place to improve and protect their cash flow.
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