(Published in conjunction with Jeanine Purdie of REPAID! Collections, June 2025)
The Australian government – through the ATO – is increasing the pressure on Australian businesses to pay their Tax Debt. This is an uncomfortable – but hardly surprising – push from a government faced with $34 billion in unpaid SME tax debt.
They’ve added an extra “incentive” that starts at the end of June. Under new legislation that applies from 1st July 2025, interest on unpaid tax debt is no longer a deductible business expense. So the costs of any unpaid tax debt to your business – even if you have a payment plan – are about to increase.
Lots of businesses who got behind on their tax during COVID, then were lulled into “it’s a deduction” are going to spend even more time working for the government instead of working on their business.
Why is it that many SME operators – despite showing a decent profit on their annual tax return – still can’t pay their assessed taxes when they’re due?
The reason is the same as the underlying reason that they:
- Scrimp on ordering stock
- Delay supplier payments
- Cut back on vital services
- Stop paying themselves an income AND
- Suffer sleepless nights and stress-filled days
The underlying reason for incurring the debt is the same reason that will make it difficult for many SMEs to reduce their tax debt.
The underlying challenge most SMEs face every day is the inconsistent cash flow through their business. The root cause of this inconsistency is a fundamental reality of the 21st century that:
The majority of small businesses have to PAY FOR what they need to operate LONG before they GET PAID.
Retailers have to buy in stock months ahead. Construction companies have to buy materials and pay subbies. Services businesses have to make payroll every fortnight and meet infrastructure costs every month.
In most industries, SMEs have to wait 30-90 days to get paid, creating recurring and disruptive Working Capital Cash Gaps.
The uncounted costs of Outstanding Debtors
As well as creating a Working Capital Cash Gap, for most SMEs their Outstanding Debtors is sucking up business resources and increasing business risk in several of ways:
- Administration costs: Every unpaid invoice has overheads in management. Someone in your business has to watch for payment, reconcile accounts and followup on overdue invoices.
- Interest costs: 30-90 day credit terms mean you’re essentially lending your customers money at zero interest. If you’re running on a 5% margin and the market cost of borrowing is 6%, then you’re starting from behind – even if customers pay on time, every time.
- Debt-carrying costs: Late-paying customers increase your admin costs and your interest costs (and your stress levels).
- Bad debt risks: Sometimes, some customers just don’t pay.
- Opportunity costs: If you’re not getting paid on time – and even if you are – your Outstanding Debtors is costing your business in opportunities:
- Lost early payment and quantity discounts
- Supplier late payment penalties
- Credit restrictions from lenders
- Insufficient funds to take on new business opportunities.
Traditional debtors advice is insufficient
Look up traditional guides to good debtor management and they’ll basically tell you to “do better housekeeping”. You’ll be advised to take actions such as:
- Do extensive credit checking
- Take out Debtor Insurance
- Offer early payment incentives
- Manage outstanding debtors closely.
These are good practices in the right circumstances – if you’ve been “too busy” to do them, then you absolutely should look at their value.
However ”better debtor management” doesn’t deal with the root-cause Cash Gap that puts most SMEs behind the 8-ball. “Better debtor management” doesn’t fundamentally change the variability of the Working Capital Flow through your business.
How can you fix your cash gap – AND your debtors?
Big business addresses the cash gap through investors – but that’s not an option for most SMEs who have often maxed out “the bank of family and friends”.
The good news is that SMEs have strategic options open today that didn’t exist 10 years ago.
How much Working Capital is tied up in your Debtors?
Most SMEs don’t think about their Debtors as a business asset most of the time – so they don’t recognise it as a source of Working Capital.
Take the time for this short calculation:
- Add up all your outstanding customer invoices issued in the last 60 days
- Calculate 80% of that number.
That’s the amount of Working Capital currently tied up in your Debtors that you could access today.
Would speedy access to that amount of Working Capital enable you to reduce – or even resolve – a costly, unproductive tax debt?
Today’s sound, responsive business financing tools free up SME Working Capital
There is a broad range of practical, affordable technology-enabled business financing tools that can enable you to open up the funds ALREADY IN your business.
There are two main types of tools particularly useful in dealing with the cost of Debtors and unpaid Tax Debt in one hit:
- Basic Debtor Finance (also called Invoice Finance) lends up to 80% of invoice value when you invoice your customers, smoothing your cash flow and reducing your stress.
- Receivables Management Finance also lends 80% of invoice value when you invoice AND outsources your Debtors Management process as well, cutting in-house costs and risks.
Two key advantages of both these product types are that:
- Providers primarily evaluate your customers capacity to pay – so these tools are much more affordable and accessible than most business operators realise.
- As your Debtors are your security, they don’t require personal or business assets as security.
The right combination of today’s technology-enabled Cash Flow financing tools – when combined strategically and professionally tailored to your business – can help your business escape the Cash Gap and deal proactively with outstanding Tax Debt.
If you’re looking for a smarter way to fund your Tax Debt payments, then book a call with an experienced Working Capital Strategist today.
