Protecting Your Business from Unpaid Accounts: Using Credit Terms and the PPSA System
- Future Accounting
- 2 days ago
- 4 min read
Written by: Chris Mulcahy
The ultimate guide to protecting your business from unpaid accounts and bad debts
Introduction
Unpaid accounts are one of the most common causes of financial stress for small business owners and farming enterprises. When customers fail to pay, you can quickly find yourself as an unsecured creditor - often recovering little or nothing if the debtor becomes insolvent.
Fortunately, there are effective ways to protect your position. By setting clear credit terms, using the Personal Property Securities Register (PPSR), and understanding Purchase Money Security Interests (PMSIs), you can secure your rights and reduce the risk of substantial losses.
Establish Clear Credit Policies
Before extending credit, implement structured credit policies that balance opportunity with risk management.
Key steps include:
Credit Application Forms: Collect full business details (ABN, ACN, and ownership information).
Credit Checks: Review financial stability through credit agencies.
Trade References: Verify payment history with other suppliers.
Terms of Trade: Define payment periods, penalties for late payment, and conditions for halting supply.
Having signed and consistent credit terms helps protect your business if recovery action becomes necessary.
Use Properly Drafted Terms of Trade and Security Clauses
Your terms of trade should be legally sound and include:
Retention of Title (ROT) Clauses: Ownership remains with you until payment is made in full.
PPSA Clauses: Ensure your contract gives you the right to register a security interest over goods or property supplied on credit.
Default Clauses: Outline recovery actions, interest on overdue amounts, and legal cost recovery.
It’s crucial to have your documentation reviewed to ensure PPSA compliance especially if you operate across state borders or supply on consignment.
Register Your Interests Under the PPSA
The Personal Property Securities Act 2009 (PPSA) protects suppliers and lenders by allowing registration of security interests on the Personal Property Securities Register (PPSR).
By registering, you:
Become a secured creditor, ranking ahead of unsecured creditors.
Retain rights to recover goods or proceeds in the event of insolvency.
Protect leased or hired assets, such as machinery or vehicles.
Timely registration is a vital part of protecting your business from unpaid accounts, as it ensures your rights are legally recognised and enforceable. Registration is inexpensive and can be completed online but must be done within 20 business days to ensure full protection.
Strengthen Your Position with a PMSI
A Purchase Money Security Interest (PMSI) provides super-priority protection under the PPSA. This type of security interest applies when:
You sell goods on credit or retention of title terms.
You lease or hire goods for more than two years.
You provide finance enabling the customer to buy specific assets.
If correctly registered, a PMSI ranks ahead of other security interests — even those registered earlier.
Timing is critical:
For inventory (stock): register before the customer receives possession.
For equipment or goods: register within 15 business days of possession.
Failing to meet these timeframes may result in losing the PMSI priority.
For farmers and suppliers extending credit for feed, machinery, or crop inputs, PMSI registration is one of the most effective forms of protection available.
Review Existing Arrangements
Regularly review your trading arrangements to ensure:
Contracts include current PPSA-compliant clauses.
Security interests are validly registered on the PPSR.
Registrations are renewed before expiry.
Accurate records are kept for supply and payment histories.
Many longstanding arrangements can leave suppliers unintentionally unsecured a simple review can close those gaps.
Monitor and Enforce Payment Discipline
Effective credit control is an ongoing process.
Issue timely statements and follow up overdue accounts promptly.
Place holds on further supply when accounts exceed terms.
Escalate unresolved debts to professional collection services early.
These steps demonstrate that your business takes payment discipline seriously and help identify potential bad debts before they escalate.
Conclusion
Becoming an unsecured creditor can have devastating consequences. By combining sound credit practices, clear contractual terms, and timely PPSA and PMSI registrations, you can greatly reduce your risk and protect your livelihood.
If you’d like help reviewing your credit terms or registering your security interests, our team at Future Accounting Group can guide you through the process. We’ll help you protect your position before it’s too late. Book an appointment with our team today.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
