Your business owes the ATO:
$430,000.
That sounds serious.
Then you open the debtor ledger.
Customers owe the business:
$1.65 million.
Suddenly the problem looks different.
The business isn’t necessarily short of sales.
It isn’t necessarily unprofitable.
It may simply have too much money sitting outside the business while obligations inside the business continue to fall due.
The owner asks:
“Why would I borrow money to pay the ATO when customers already owe me more than enough to clear it?”
Fair question.
But there’s another one:
“When are those customers actually going to pay?”
Because:
$1.65 million invoiced
is not the same thing as:
$1.65 million available.
And if slow customer payments contributed to the ATO debt in the first place, simply refinancing:
$430,000
of tax debt may not solve the underlying problem.
Before deciding what to finance, we need to understand the:
$1.65 million debtor ledger.
The Whyalla Business
Imagine an established industrial services, maintenance and contracting business operating from Whyalla and servicing commercial customers across regional South Australia.
Trading history:
19 years.
Annual turnover:
approximately $10.4 million.
Employees:
44.
ATO debt:
$430,000.
Current accounts receivable:
$1.65 million.
The business is profitable.
There is substantial work underway.
The owners aren’t dealing with a lack of customers.
Their problem is timing.
The Business Has Already Done the Work
The employees have:
turned up,
completed the work,
used the equipment,
consumed fuel,
used materials,
and submitted the invoices.
But the money hasn’t arrived.
Meanwhile:
payroll continues.
Suppliers continue.
Equipment finance continues.
Insurance continues.
And tax obligations continue.
That’s the Cashflow Mismatch
Money goes out:
today.
Customer money comes in:
later.
If the gap becomes large enough, something has to fund it.
In This Business, the ATO Has Partly Funded the Gap
Not deliberately.
But that’s effectively what happened.
The business prioritised:
employees,
critical suppliers,
fuel,
equipment,
and project delivery.
Tax obligations fell behind.
ATO debt eventually reached:
$430,000.
The Owner Sees $1.65 Million in Debtors and Thinks the Problem Will Fix Itself
Maybe.
Let’s examine the ledger.
Total outstanding:
$1.65 million.
Current:
$410,000.
31 to 60 days:
$520,000.
61 to 90 days:
$390,000.
More than 90 days:
$330,000.
Now the picture becomes much more useful.
Not Every Dollar in the Debtor Ledger Is Equal
A:
$100,000
invoice issued yesterday
is different from:
a $100,000 invoice that’s 120 days overdue.
One may simply be progressing through normal payment terms.
The other may involve:
a dispute,
administrative delay,
customer financial difficulty,
or collection risk.
Start With the $330,000 Over 90 Days
Why hasn’t it been paid?
Suppose:
$140,000
is under commercial dispute.
$85,000
relates to incomplete customer documentation.
$60,000
is from a customer experiencing financial difficulty.
$45,000
is expected shortly.
Now we know:
the business cannot simply assume all:
$330,000
is immediately collectible.
The Ledger Says $1.65 Million
But the amount that can realistically become cash quickly may be much lower.
That’s why:
“Customers owe me more than I owe the ATO”
doesn’t automatically answer the funding question.
Now Look at Customer Concentration
Largest customer owes:
$480,000.
Second-largest:
$310,000.
Third-largest:
$225,000.
Those three customers account for:
$1.015 million
of the:
$1.65 million ledger.
That’s approximately:
61% of all outstanding receivables.
Three Customers Control More Than $1 Million of Your Cash
That matters.
If one large customer changes payment timing:
the business feels it immediately.
Suppose the Largest Customer Moves From 30 Days to 60 Days
Outstanding:
$480,000.
The customer is financially strong.
There is no dispute.
They’re simply paying later.
The business still has to fund:
wages,
materials,
equipment,
and tax
during the additional waiting period.
Slow Payment Can Create ATO Debt Even When the Customer Eventually Pays
This distinction is important.
The customer doesn’t necessarily have to default.
They may pay every invoice in full.
Just:
late.
The business can still experience a severe working-capital shortage.
How Much Does the Business Spend Each Week?
Payroll:
approximately $128,000.
Suppliers and subcontractors:
approximately $92,000.
Fuel, equipment and other operating costs:
approximately $48,000.
That’s roughly:
$268,000 per week
before allowing for tax and some other commitments.
A two-week delay in major customer receipts can therefore matter enormously.
The Business Doesn’t Need to Be Losing Money to Run Out of Cash
It just needs:
cash out
to occur before:
cash in.
That’s why profitable businesses can accumulate ATO debt.
So Which Problem Do We Fix First?
The:
$430,000 ATO debt?
Or:
the slow-paying customers?
Potentially:
both.
But possibly with different strategies.
Problem One Is Historical
ATO debt:
$430,000.
This is money already owed.
The business needs a strategy for dealing with it.
That might involve:
maintaining an ATO payment arrangement,
refinancing some or all of the debt,
using surplus cash,
or another appropriate strategy.
Problem Two Is Ongoing
Customers continue to pay slowly.
If that doesn’t change, the working-capital pressure continues after the historical ATO debt is dealt with.
That’s why refinancing the tax debt alone may not be enough.
Imagine We Refinance the Entire $430,000
Settlement occurs.
ATO balance:
$0.
Excellent.
But debtor days remain:
54 days.
Six months later, the business has another:
$1.7 million
in receivables.
Cash is tight again.
New tax obligations begin falling behind.
Twelve Months Later
New lender:
approximately $430,000 originally financed.
New ATO debt:
$175,000.
Debtors:
$1.8 million.
Now the business has:
both debts.
That’s not the outcome we want.
What If We Fix the Debtor Cycle First?
Maybe customer collection can improve.
Suppose average debtor days reduce from:
54
to:
40.
On:
$10.4 million
annual turnover, a simple turnover-based illustration suggests that 14 fewer debtor days could represent roughly:
$399,000
less revenue sitting in the collection cycle at a point in time.
That doesn’t mean exactly:
$399,000
will instantly appear in the bank.
But it shows how significant debtor timing can be.
Fourteen Days Can Be Worth Hundreds of Thousands in Working Capital
That’s why improving debtor collection can sometimes be more powerful than simply arranging another loan.
Can Customers Be Encouraged to Pay Faster?
Potentially through:
better invoicing,
earlier invoicing,
correct purchase orders,
clear payment terms,
immediate dispute resolution,
regular debtor follow-up,
and stronger credit control.
Those are operational changes.
They don’t require finance.
One Missing Purchase Order Can Delay a $150,000 Invoice
In larger commercial organisations, invoices can be delayed because:
purchase order doesn’t match,
job number is wrong,
supporting documentation is missing,
approval hasn’t been completed,
or the invoice went to the wrong department.
That’s not a lending problem.
It’s an administration problem.
Fix it.
Don’t Pay Finance Costs to Solve a Problem Caused by Poor Invoicing
If:
$250,000
of overdue invoices could be collected through better administration, start there.
Finance should solve a genuine funding requirement.
Not replace basic debtor management.
But What If the Customers Simply Have Long Payment Terms?
Different issue.
Perhaps the business works with large organisations that genuinely pay:
45,
60,
or even longer
under their commercial terms.
The business may have little ability to change that.
Now the working-capital gap may be structural.
That’s Where Debtor Finance May Be Worth Investigating
Invoice or debtor finance may potentially allow a business to access part of the value of eligible commercial invoices before the customer pays.
The exact amount, eligibility and structure depend on:
the lender,
the debtor ledger,
customer quality,
invoice type,
concentration,
and other requirements.
It isn’t:
“You have $1.65 million in invoices, so you can borrow $1.65 million.”
The ledger needs assessment.
Look at Eligible Debtors
Suppose:
Total ledger:
$1.65 million.
But:
consumer invoices:
$70,000.
Disputed invoices:
$140,000.
Very old debts:
$120,000.
Other potentially ineligible amounts:
$90,000.
That leaves a different potential eligible pool.
The lender will apply its own criteria.
Customer Quality Matters
A:
$200,000
invoice owed by a strong commercial customer
is not necessarily assessed the same way as:
$200,000
owed by a financially distressed small business.
The debtor matters.
Concentration Matters Too
If one customer represents:
50%
of the ledger,
some lenders may approach that differently from a diversified customer base.
Again:
lender policies vary.
What If Debtor Finance Releases Enough Cash to Pay the ATO?
Interesting.
Suppose a suitable debtor-finance structure gives the business access to substantial cash currently tied up in eligible receivables.
Could some of that cash be used towards:
the historical ATO debt?
Potentially, depending on:
facility terms,
business requirements,
and overall strategy.
But don’t strip all available working capital from the business just to produce a zero ATO balance.
The Business Still Needs to Operate Tomorrow
Suppose the facility generates:
$600,000
of additional available cash.
The owner says:
“Great. Pay $430,000 to the ATO.”
Maybe.
But what does the business need for:
payroll,
suppliers,
project mobilisation,
and operating reserves?
Perhaps paying:
$430,000
immediately leaves the business tight again.
A Zero ATO Balance With No Working Capital Isn’t Necessarily a Win
The business needs:
both
a tax strategy
and
an operating cash strategy.
What If the Business Can Pay $200,000 From Improved Debtor Collections?
Then perhaps the remaining ATO problem becomes:
$230,000.
That’s a different finance request.
Maybe the business doesn’t need:
$430,000
of ATO finance after all.
This Is Why Timing Matters
Don’t arrange the loan first and analyse the debtors afterwards.
Understand what cash may realistically become available.
Then size the finance requirement.
What If the ATO Debt Is on an Existing Payment Arrangement?
Then we need to know:
payment amount,
frequency,
whether payments are current,
and whether the business can continue meeting the arrangement while funding operations.
Perhaps the arrangement is manageable once debtor cashflow improves.
If so:
refinancing may not be necessary.
What If the ATO Arrangement Is the Main Cashflow Problem?
Different situation.
Maybe the business has improved collections but the historical ATO repayment remains too demanding.
Now refinancing the historical balance may be worth investigating.
Again:
we diagnose the cause.
Don’t Confuse the Symptom With the Cause
ATO debt:
symptom.
Slow debtors:
possible cause.
But there may be others.
Perhaps:
inventory is too high.
Equipment was bought from cash.
Margins have fallen.
Owners withdrew too much.
Growth was underfunded.
The debtor ledger is one part of the analysis.
What If the Business Has $1.65 Million in Debtors but Only $430,000 of ATO Debt?
The ratio looks comforting.
But don’t stop there.
If:
$800,000
of debtors are seriously overdue or disputed,
the position isn’t as strong as it first appears.
What If All $1.65 Million Is High-Quality and Current?
That’s different.
Perhaps the business simply has a predictable:
45 to 60-day
collection cycle.
Now there may be a strong case for investigating a working-capital structure built around receivables.
What If Customers Pay in Seven Days?
Then debtor finance may be unnecessary.
If the business collects quickly but still owes:
$430,000
to the ATO, the cash problem is probably somewhere else.
Look for it.
What If the Largest Customer Pays Tomorrow?
Excellent.
If:
$480,000
arrives tomorrow,
the business could theoretically clear the ATO balance.
Should it?
Not automatically.
Look at the Next Four Weeks
Upcoming payroll:
$512,000.
Suppliers:
$360,000.
Equipment commitments:
$95,000.
Other operating costs:
substantial.
The:
$480,000
customer receipt may already have several jobs.
Cash Isn’t Surplus Just Because It Arrived
This is one of the biggest mistakes in business cashflow management.
A large customer payment hits the account.
Bank balance looks fantastic.
Owner thinks:
“We’re flush.”
But much of that money may already be committed.
Build a 13-Week Cashflow Forecast
This can be extremely useful.
Week by week, show:
opening cash,
expected customer receipts,
payroll,
suppliers,
tax,
finance repayments,
and other major expenses.
Now you can see:
when the business is genuinely short
and
when cash is genuinely surplus.
Why 13 Weeks?
It provides enough visibility to see several payment cycles without pretending we can accurately forecast every detail years ahead.
Your accountant or adviser may use a different approach.
The important thing is:
forecast the cash.
Could Property-Secured Finance Still Be Relevant?
Potentially.
Maybe the business owns commercial property and wants to restructure the historical ATO debt over an appropriate period.
That can be investigated separately from the debtor facility.
But don’t automatically use property if the receivables problem can release sufficient cash.
Could Unsecured ATO Finance Be Relevant?
Potentially, depending on:
amount,
business strength,
cashflow,
credit,
and lender appetite.
Again:
the repayment must work alongside the business’s debtor cycle.
Could Both Be Used?
Potentially.
For example:
one facility addresses:
historical ATO debt.
Another addresses:
ongoing receivable timing.
That can sometimes be more logical than forcing two different problems into one product.
But it also creates multiple facilities and costs.
The business needs to understand the total structure.
Don’t Over-Finance the Business
ATO:
$430,000.
Debtor facility:
potentially substantial.
Working-capital facility:
maybe.
Property finance:
maybe.
Equipment finance:
existing.
Suddenly the business can accumulate a large amount of available credit.
Availability doesn’t mean it should all be used.
Every Facility Needs a Job
ATO finance:
historical tax debt.
Debtor finance:
cash tied up in eligible invoices.
Equipment finance:
productive assets.
Property finance:
property-related or appropriately secured business requirements.
When the purpose is clear, the debt structure is easier to manage.
What If the Business Is Growing?
Now this becomes even more important.
Suppose turnover is expected to increase:
from $10.4 million
to:
$12.8 million.
That growth may increase:
debtors,
payroll,
materials,
and working-capital requirements.
The business needs to plan for that before the next contracts commence.
More Sales Could Make the Cash Problem Worse
If customers continue paying:
54 days,
another:
$2.4 million
of annual revenue may increase the amount of money tied up outside the business.
Growth isn’t automatically the cure.
What If You Stop Growing?
Cash may begin to catch up.
Projects complete.
Customers pay.
New mobilisation spending slows.
The business may naturally release working capital.
That could help reduce the ATO debt without substantial new borrowing.
Forecast it before making the finance decision.
What Does a Good Outcome Look Like?
Twelve months later:
Historical ATO debt:
resolved or substantially reduced.
Current tax:
up to date.
Average debtor days:
improved.
Over-90-day debtors:
materially lower.
Operating cash reserve:
stable.
Business:
profitable.
That’s progress.
Bad Outcome
ATO:
refinanced.
Debtor days:
unchanged.
Overdue invoices:
increasing.
New ATO debt:
accumulating.
Additional short-term finance:
required.
That’s simply moving the problem around.
Customers Owing You Money Doesn’t Pay the ATO
Cash does.
That’s the distinction.
A:
$1.65 million
debtor ledger may be a strong business asset.
But until those invoices convert to available cash, the business still has to fund:
operations
and
its obligations.
If Customers Owe You More Than You Owe the ATO, Start With the Ledger
Tell Thrive Broking:
current ATO balance,
whether there is an ATO payment arrangement,
whether required tax lodgements are current,
annual turnover,
trading history,
profitability,
and existing business finance.
Then provide:
total debtor ledger,
debtor ageing,
largest customer balances,
customer payment terms,
and details of any:
disputed,
seriously overdue,
or unusual invoices.
Also tell us:
weekly payroll,
major supplier commitments,
and whether the business is growing.
Then we can investigate whether the real requirement may involve:
ATO debt finance,
debtor or invoice finance,
working-capital finance,
or a combination.
Because if your business owes:
$430,000
to the ATO
while customers owe you:
$1.65 million,
the first question isn’t simply:
“Where can I borrow $430,000?”
It’s:
“Why isn’t the $1.65 million already providing the cash the business needs?”
Answer that first.
Then finance the problem that actually remains.