Published: July 2025
Credit control is a critical function for small and medium businesses (SMBs) in Australia, where managing debtor payments can directly impact cash flow and profitability. With SMBs facing rising costs and economic pressures, effective credit control minimises bad debts and ensures timely collections.
According to the Australian National Audit Office, small business tax debt alone totalled $15 billion in 2019, highlighting the scale of debt issues. Today, with inflationary pressures and interest rate hikes from the RBA, robust credit control is more essential than ever.
This comprehensive guide focuses on credit control for Australian SMBs, covering its importance, key strategies, legal frameworks, practical examples with calculations, common pitfalls, and best practices.
Drawing from sources like the Australian Competition and Consumer Commission (ACCC) and CPA Australia, we'll provide insightful, fact-based advice to help your business thrive without fictitious claims.
Credit control refers to the processes and policies businesses use to assess customer creditworthiness, extend credit, and collect payments. For Australian SMBs, this includes setting terms, monitoring accounts receivable, and handling overdue debts. It's not just about chasing payments but preventing issues through proactive measures.
In Australia, credit control must comply with laws like the Privacy Act and ACCC guidelines on debt collection. SMBs, defined as those with turnover under $3 million per the Office of the Australian Information Commissioner (OAIC), often extend credit to build relationships but risk bad debts if unmanaged.
Poor credit control leads to cash flow crises, a leading cause of SMB failure. The RBA notes that small businesses struggle with finance access, exacerbated by unpaid invoices. Statistics from the Treasury show that micro businesses face innovation barriers, including credit management, at 65.8%.
Effective control reduces bad debts, which MYOB defines as uncollectible amounts impacting cash flow. In Australia, household debt statistics indirectly affect SMBs, with average bad debt per business potentially high amid economic strains. NAB's 2023 survey indicates average personal loan debt at $10,925, reflecting broader debt trends.
Viral appeal lies in real stories: Many SMBs recover from near-collapse by tightening credit, turning potential losses into profits.
CPA Australia's guide on internal controls emphasises simple systems for SMBs.
The ACCC's debt collection guideline outlines fair practices: No harassment, clear communication, and respect for privacy. The Payment Times Reporting Act requires large businesses to report payment terms to small suppliers, promoting prompt payments.
For SMBs, the Small Business Restructuring process under ASIC allows debt management if insolvent. Breaches can lead to fines, so compliance is key.
Example 1: Calculating Bad Debt Provision
A Sydney retailer has $100,000 in receivables. Historical bad debt rate: 5%.
Provision = $100,000 * 0.05 = $5,000.
Journal: Debit Bad Debt Expense $5,000; Credit Allowance for Doubtful Debts $5,000.
If actual bad debt is $4,000, adjust: Debit Allowance $4,000; Credit Receivables $4,000.
MYOB explains this as essential for accrual accounting.
Example 2: Ageing Analysis for Collections
Invoices: $20,000 (0-30 days), $10,000 (31-60), $5,000 (over 60).
Focus on over 60: Send reminders, offer 2% discount for prompt payment.
Potential recovery: $5,000 * 80% = $4,000 saved.
Example 3: Credit Limit Setting
Customer requests $50,000 credit.
Assess: Credit score good, past payments on time.Limit = Average order * 2 = $20,000 * 2 = $40,000 (conservative).
If default risk high, reduce to $30,000.
Calculation: Based on DSO (Days Sales Outstanding) = (Receivables / Sales) * 365. Target under 45 days.
APRA's Prudential Practice Guide on credit risk supports sound practices.
Paidnice's guide stresses invoicing immediately and following up.
In summary, credit control safeguards Australian SMBs against financial pitfalls, fostering stability and growth.
Q: What is the legal limit for debt collection in Australia?
A: ACCC guidelines prohibit harassment; collectors must identify themselves and provide debt details.
Q; How can SMBs reduce bad debts?
A: Implement credit checks and ageing analysis, as per MYOB.
Q: Is credit insurance worth it for SMBs?
A: Yes, for high-risk industries, covering up to 90% of losses.
Q: What if a customer disputes a debt?
A: Provide evidence and negotiate; escalate to tribunals if needed.
Q: How does GST affect credit control?
A: Claim adjustments for bad debts if on accrual basis, per ATO.
Why is early intervention key?
Reduces recovery time; stats show 80% success within 60 days.
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