The PPSA for Dummies – Selling anything on credit
Simon Read, founder of PPSAdvisory, is helping unravel the mystery of the PPSA and why it’s so critical you appreciate its application to your or your client’s business.
It’s a big topic so we’re breaking it down into “bite sized” pieces, identifying the five principle ways in which the PPSA is likely to have application to your business:
- Business loans;
- Selling goods/materials on credit to your customers
- Leasing or renting equipment to customers
- Asset protection structures
- Buying/selling businesses
Remember, the PPSA is all about security; if you have security you better register it on the PPS Register if you ever want to rely on it.
By far the greatest benefit of the PPSA is its ability to create security over the things you sell. The PPSA now allows you to truly retain title in your goods until they are paid for. This is BIG news for suppliers but so few are aware of it.
The PPSA was introduced to ‘level the playing field’ where the insolvency of a customer occurs.
How many times has a customer collapsed and you end up with nothing, whilst secured creditors (usually the Banks) get repaid? Well, the PPSA changes all of this.
Compliance with the PPSA promotes suppliers to secured creditor status for the goods/equipment you’ve supplied. You now have security in the goods and equiment. And, because you have security, you must register it on the PPS register if you want to rely on it.
Your security ranks ahead of the traditional secured creditors, you now outrank the Banks!
- ABC sells packaging material to the Healthy Chocolate company.
- In 2015 ABC performed a PPS registration over Healthy Chocolate.
- Three years later and Healthy Chocolate collapses owing ABC $35k.
- At the time of their collapse Healthy Chocolate held quantities of ABC’s packaging material as:
- Raw material
- Empty chocolate boxes
- Full chocolate boxes
- Chocolate boxes which had been sold but for which Healthy Chocolate had not been paid by their customer
ABC now has security for the payment of its $35k in all of the above. It still owns all of the materials and boxes in the possession of Healthy Chocolate. It also has security over the money owed (as far as it relates to the packaging material) to Healthy Chocolate, by its customers.
So, what? Does ABC really want its materials and boxes back? No. But the Administrator or new owner will certainly need them to carry on the business. ABC now has a lot of leverage and can use it to negotiate an appropriate settlement.
This is a real-life example and we’ve seen many of them. The PPSA can be the difference between getting a return from an insolvent customer and getting nothing. And the cost? ABC spends $6 to perform a registration over each customer, providing ongoing protection for every transaction with the customer for the next 7 years.
It doesn’t matter what you sell. If it’s sold on credit, secure your payment by complying with the PPSA. We have clients selling concrete, asphalt, fuel, spare parts, chemicals, fertiliser, windows, plumbing, piping, containers, packaging – you name it they secure it.
There’s a bit to sort out, particularly ensuring your customer consents to you retaining title to the goods you sell (your retention of title rights are most likely already included in your terms of trade).
But please, if you sell things on credit terms you must consider how the PPSA can help secure your payment.
Please remember this is not legal advice, we are not lawyers and the information is provided for general guidance only. Readers should obtain confirming legal advice before acting.