How PPSR can benefit your business

It has been a month since the national personal property security register (PPSR) became operational, but many small businesses are still unaware of what the new PPSR reforms really mean and how they are affected.

The transition to a national register on 30 January, which replaced more than 70 different Commonwealth, state and territory registers, is designed to help businesses and consumers ensure that purchased property - such as vehicles, inventory or machinery - do not have a security interest.*

You may be wondering how this affects your business, but according to the PPSR website, the reform improves the ability of SMEs to use more of their property to secure lending and remove some of the previous limitations or uncertainty regarding the use of personal property as security.

According to Dun & Bradstreet's PPS project manager, Ben Elsworth, it is important for each business engaged in PPS to understand its options and obligations under the new system and the extent to which a firm wishes to participate.

"Firms will need to be guided through the legislation, including understanding compliance issues, so that you are able to enforce your rights when necessary, as well as implementing an effective method for ongoing new customer registrations and registry maintenance."

Here are some ways PPSR will benefit your business.

Improves your credit risk

Registering your security interest on the goods you supply or lease will improve the way you manage your business's credit risk. In the case that your debtor becomes bankrupt or is liquidated, your business will still remain a secured creditor - meaning that you still get paid on time and that the goods leased will still belong to you.

Mr Elsworth says the reform will provide Australian businesses with a new level of reassurance against debtor insolvency.

"With insolvency levels rising each year, the cost to creditors from unsecured loans can be immeasurable. While securing debtor assets as a means of insuring against a default can appear to be the easy option, many creditors find out too late the chances of recovering the full amount owed was often difficult under the old system."

Under the previous system, a range of factors influenced the debt recovery process including the location of the collateral.

Types of goods classified as personal property include: plant and equipment, cars, boats, planes, crops, livestock, art, licenses, shares, accounts receivable, contract rights and intellectual property. Given the array of these classifications that PPSR applies to, it is important to register before going into any type of credit transaction.

Streamlines your records

Prior to the PPSR, each state, territory and the Australian Government had their own register, meaning that if a business had personal property registrations in more than one state, it would have had to pay the registration fee more than once. This could be extremely costly for a small business with limited finances to spare.

The new register removes the need for your business to register the same property more than once in different states or territories, which not only reduces this cost but also streamlines the number of records and registrations you hold on a certain property. Goods can also be easily searched online by registration number, type of good, serial number or organisation grantor.

However it is important to be aware that if you have a security interest prior to 30 January 2012, you will have a two year period in which you may shift your existing interests to the PPSR. If you fail to do so during that two year period, your security interests may be lost.

Retains ownership of your goods

If your business supplies or leases collateral other than real estate to a third party, and if the third party becomes insolvent, you can repossess the goods if they are not fully paid for. This is known as 'retention of title', and according to the PPSR website, it refers to the "type of clauses that may be included in contracts where a purchaser may take possession of property, but does not acquire title to the property from the seller until the full purchase price is paid".

However, in order to repossess the goods or claim title to them, this clause requires you to register your security interest. This is particularly important for SMEs, as the loss of a personal property title may strike a significant blow on their cash flow cycle that can sometimes be the difference between staying afloat and going insolvent.

If your business supplies goods on a regular, continuous basis, you will only have to register once for each customer, not for every supply.

For more information see D&B's guide to PPSR or see Suncorp Executive Manager of Business Lending Mark Harper's editorial article.

Registrations are currently open on PPSR.gov.au.

*Security interest refers to the interest on personal property provided for by a transaction that secures payment or performance of an obligation. Personal property affected refers to that bought on hire purchase or used as security for a loan or in a credit-providing transaction.

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