The Australian Taxation Office is owed around $35.3 billion at the last count, a number that is growing every year. SMEs are the biggest proportion of debt makers, creating up to 60 per cent of all money owed.
While owing money to the ATO is something that can happen to even the most organised businesses, addressing the issue quickly is pivotal in avoiding the dangers of ATO garnishee notices, director penalty notices or legal action.
The ATO has a number of payment plan options and generally works with businesses to resolve even complex situations.
Although a business may be meeting its payment plan obligations, having an ATO debt often closes off funding options, resulting in a higher cost of funding. Paying out any ATO debt can open new doors for businesses to access wider sources of business funding, for example: banking lines of credit.
Here are three options for SMEs to raise funds to pay out their ATO arrears:
1. Debtor finance
Also known as invoice discounting, cash flow finance and invoice finance, debtor finance is a popular way to inject cash into a business without taking on additional debt. A company can use its debtors ledger to receive up to 85 per cent of its money that is otherwise tied up in outstanding invoices, usually receiving funds within 24 hours of approval.
2. Sale-back finance
Sale-back finance is an equipment finance solution that allows a company to ‘sell’ an existing asset to a financier and effectively lease it back for monthly repayments over a term that suits their cash flow.
This allows the business to raise the capital required to repay the ATO debt, while also potentially benefiting from any tax advantages associated with the finance arrangements. Your trusted tax accountant will be able to advise which finance product is most suitable, whether it is an operating lease, finance lease or secured loan.
3. Integrated finance
Integrated finance is a solution that combines equipment finance and debtor finance, when either funding option alone would not be sufficient to raise the required funds.
For businesses that sell to other businesses on credit, have cash flow pressures and own durable assets such as trucks, cranes, scissor lifts or other plant and machinery, an integrated finance facility might be the solution to ATO arears problems.
With more and more pressure being placed on the ATO to rein in the escalating debt, now is the time for SMEs to consider their options and take action, before the ATO does.
David Wright is an experienced business finance specialist with Classic Funding Group, a financial services company. He specialises in structuring smart asset finance solutions for SMEs across all industry sectors.