How to better collect debts? Get your customers’ ABN and ACN

Debt collection is an important part of any business. When your debt collection process is in disarray, your data is all over the place possibly resulting in erroneous invoices and delayed payments. An effective debt collection process starts with a highly organized system where all information relating to your customers are in order.

Imagine realizing that you have not been paid because you sent an invoice to the wrong customer or to the wrong address. Even worse is finding out that you have been sending invoices to a company that is no longer operating.

Doing business in Australia requires you to apply for an Australian company number (ACN) or an Australian business number (ABN). These two numbers represent the legitimacy of a business and thus, when you have with you your customers’ ABN or ACN, you are at least assured that they have lawfully registered with the proper government agency.

The Importance of Obtaining an ACN/ABN from Your Clients

What is an ACN?

An ACN is a 9-digit number issued by the Australian Securities and Investments Commission (ASIC) to any entity that registers their business as a “company.” The purpose of the number is for the ASIC to monitor the company’s activities.

The ACN is required to be displayed on all company documents including statements of accounts or invoices, receipts, business letterheads, official company notices, and cheques.

What is an ABN?

The ABN is an 11-digit number issued by the Australian Taxation Office (ATO) to identify a business, regardless of business structure. Even sole traders are required to register an ABN. The unique number is also used by the ATO to monitor the company’s activity and its tax obligations.

While all companies are required to get an ACN, not all Australian businesses are entitled to get an ABN. Among those qualified to get an ABN are those who are “carrying on an enterprise” in Australia.

PRO TIP: Your customer may use both or either of the two numbers. Just take note that the ABN should include the 9-digit ACN and both or either of the two numbers should be prominently displayed in company documents.

How to get your customer’s ACN/ABN?

Entities doing business – sole proprietorships, partnerships, and corporations – are required to print their ACN and/or ABN details in important company documents such as order forms and invoices.

Here are 3 tips on how you can get your customers’ ACN or ABN:

  1. Review commercial documents given to you by your customers. If the customer did not indicate ABN and ACN in the commercial documents, ask them to provide the numbers.
  2. Update your credit application form and require the customer to indicate their ABN or ACN.
  3. Properly draft your terms and conditions such that the customer should disclose their ABN or ACN.

If you are dealing with companies registered in New Zealand, also get their customers’ NZBN (New Zealand Business Number).

How to look up your customer’s ACN/ABN?

There will be instances in your business dealings that you’ll fail to get your customer’s ACN/ABN. In some instances, you will have doubts as to their legal identity especially when they have not communicated with you for some time. When you are in this situation, you can lookup your customer’s ACN and ABN.

To search your customer’s ABN, go to ABR’s ABN Lookup

To lookup your customer’s ACN, go to ASIC Connect

How can your customer’s ACN/ABN improve your debt recovery?

Now that you know what is an ACN and an ABN and how you can get these two numbers from your customers, let us discuss how these two important numbers can help you improve your debt recovery efforts:

  1. Having your customer’s ACN and/or ABN lets you know who you’re dealing with.
  2. Getting your customer’s ABN and/or ACN reduces your risk of becoming a victim of phoenixing.
  3. Obtaining your customer’s ACN and/or ABN will let you who your customer’s directors are so you can get a director’s guarantee.

You know who you’re dealing with

As the ACN and ABN are unique identifiers, you will know who you are dealing with. While your customer is not precluded from using trading names different from their business name (business name is the name accompanying their ABN or ACN registration), at least you will have an idea as to the personality you’re doing business with.

One problem with not knowing who you’re dealing with is when your customer gives you a company name, e.g. ACME Corp., but does not give you the ACN or ABN. You issued the invoices under the ACME Corp. name but found out that there are many other businesses using the same or similar company name. As the ABN/ACN are unique numbers, a lookup can help you determine who exactly you are transacting with regardless of the company name they customer are using.

You reduce the risk of being a victim of phoenixing

Phoenixing is when a new company is created using the assets and cash of a previous company that was liquidated. When you get your customer’s ABN and ACN, you will be able to do a search that should give you the history of the company’s operations, including its previous and/or current wind-up proceedings.

The problem with not getting your customer’s ABN or ACN is you may belatedly know that the company you are dealing with has been liquidated and you can no longer go after your customers’ unpaid debts. In many instances, phoenixing has resulted in honest companies entering administration themselves.

You will know where to get a director’s guarantee

As we have mentioned above, knowing your customer’s ACN/ABN lets you know who you’re doing business with. It also allows you to know who your customers’ directors are in case you need to get a director’s guarantee, an undertaking that will allow you to recover unpaid debts from the directors of your customer personally.

Getting a director’s guarantee means that, aside from the customer, you may also recover their debts from their directors. Without knowing your customers’ ABN and/or ACN, you may not be able to know their directors as the company owner and director are not always the same person.

Case Study #1 on how getting the ABN or ACN can improve your debt collection efforts

XYZ Pty Ltd engages Slater Byrne Recoveries to recover overdue invoices. The debtor, Crown X Australia Pty Limited, has an annual turnover of $1million and a good reputation in their industry.

However, when SBR contacts the debtor, they told us that it is in fact Crown X1 Australia Pty Limited that owe our client the funds. Both companies have the same directors, but here’s the catch—Crown X1 Australia Pty Limited is a much smaller company and is now in liquidation.

Crown X1 Australia Pty Limited enters liquidation and listed our client as a creditor. Since there is no proof that the debt was incurred by any specific entity, our client will likely not get paid.

The only alternative for our client is to initiate legal proceedings against Crown X Australia Pty Limited. However, our client does have any real proof that they were the entity that engaged our client in the first place.

Case Study #2 on how getting the ACN or ABN can improve your debt collection efforts

In another case we featured, the customer gave our Client an ABN, which turned out to actually belong to a trust.

The problem with trusts is that they cannot be the subject of legal action unless we know who the actual trustees are because a trust is not considered a physical entity. The only way for us to find out who the trustees are – they could be individuals or companies – is to get a copy of the trust deed. However, the customer was not prepared to give us this information and our Client ended up in a difficult situation.

Lessons to learn

Due diligence is important when doing business especially when you extend credit to your customers. You want to keep good relations with your customers, at the same time, you also need to get paid. Otherwise, you can’t continue your business and end up in liquidation.

Obtaining your customer’s ABN and/or ACN is part of your due diligence as a business owner. At the start of your business dealings, ask questions and verify the numbers in your customer’s commercial documents. You can also do a quick ABN, ACN, or NZBN lookup if you think your customer is not being honest.

“The only solution/prevention for creditors is to have a company policy where if a debt hits 90+ days, it is immediately referred to a Debt Collection company. Otherwise, they run the risk of not getting paid at all & the domino effect that can cause can mean the creditor is forced into bankruptcy or liquidation themselves. Another safeguard is to ensure a personal guarantee is signed by a company director ensuring they will pay you themselves in the event anything happens to the company.”

Annabelle Parry, Director at Slater Byrne Recoveries

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