If you’re struggling with debts or cashflow issues then take action earlier rather than later, advises Holding Redlich partner Greg Wrobel.

It’s important for business owners to identify the issues and then open dialogue with creditors early on, to prevent the situations worsening, Wrobel says.

“It’s critical to engage with all creditors as part of an overall strategy to address cash-flow problems, as debt enforcement action by any one of the creditors, may be catastrophic,” adds Wrobel. “It’s also important to remember that while creditors may be prepared to negotiate, they will want to achieve an appropriate commercial outcome.”

Tips for avoiding recovery action

1. Proper debtor management is critical for any business and therefore the business owner needs to ensure that debtors strictly comply with these policies, including paying within normal trading terms.

2. Franchisees and franchisors should have clearly defined procedures and protocols in collecting their debts, which may include following-up debtors once arrears extend beyond usual trading terms.

3. Acknowledge the issue and begin discussions with creditors or debtors about the funds in question. Ignoring these problems simply means that they will compound over time, which in the overwhelming majority of cases means that the business will ultimately fail.

4. If negotiations cannot be reached with a creditor or debtor, and the business resides in New South Wales, the Office of the Small Business Commissioner provides dispute resolution services. These include assistance for commercial disputes as well as retail leasing disputes.