Working with an ATO tax debt

ATO debt can be one of the biggest barriers to securing cashflow finance for small business.  If this is an issue facing you as a business owner, you are not alone – last year the ATO released figures showing that Australian Small Businesses owe in excess of $12 billion in tax debt.  However, the debt does not always equal a problem for businesses seeking finance.

Why is tax debt so common?
Often one of the main reasons is simply down to cash flow within the business; wages may be due weekly or fortnightly, while invoices are paid generally no earlier than 45-60 days.  As any small business owner will tell you, this creates a huge strain on cash flow and can mean the business in unable to meet large debts when they arise.

Why is having a tax debt a problem for your business?
The ATO is generally pretty reasonable when it comes to making arrangements to pay off debt.  However, banks generally will have far less forgiving perspective. Tax debts can be seen as, at best, a liability and at worst, as a sign of business mismanagement.  This means businesses are unable to access additional finance whether in the form of a loan or overdraft, equipment finance, labour hire or re-financing.

How can we help?
At Apricity, we don’t necessarily see an ATO debt as a problem.  If a business has set up and stuck to a repayment arrangement, then you may be approved as a customer.  Importantly, having our solution on call means that you may be able to clear your tax debt faster, thus clearing the way for more financing and growth opportunities.   Here’s an example of customers we have helped in this way.

Case study
Our client is a successful small business supplying specialist medical imaging equipment to hospitals.  The company was doing well and winning lots of new, large contracts. The new contracts had the potential to significantly lift the revenue of the company.  However, it also meant they needed to buy new equipment.

Like many small businesses going through a period of growth, late payments and cash flow issues had led to the business getting behind on their tax payments, specifically a debt of $750K.  They were maintaining their payments, but the debt meant they could not obtain the equipment finance needed to fulfil their new contract.

Luckily, they came to us. Apricity worked with the client to review their invoices; including the defence contract valued at $1M and offered a facility limit of around $2M.  With the facility behind them, our client was able to release $950K in cash and pay the $750K to clear the ATO debt. Once this was paid the client was able to obtain equipment finance and undertake the new contract.  

Using our invoice finance facility meant that the client was able to unlock the funds from their unpaid invoices in order to remove their ATO debt, access the finance they needed to grow their business – while still maintaining cashflow to meet their regular obligations.

Mornet Van Der Merwe, our Head of Credit explains further in the video below.