SMEs warned: Protect your business and register on the PPSR

Small to medium enterprises (SMEs) are the backbone of the Australian economy, so it’s vital that SME owners give their business every opportunity to safely grow and thrive.

With more than 25,000 businesses becoming insolvent in Australia each year, securing their assets using the Personal Property Securities Register (PPSR) – a single, national online register of financial security interests – should be a top priority for small business operators.

Unfortunately, a significant number of SMEs don’t understand the process. Assets are not being correctly registered on the PPSR – which can lead to potentially catastrophic results.

Who is impacted by the PPSA?

The Personal Property Securities Act (PPSA) came into effect in January 2012 and enabled 22 state and federal government registries to be consolidated into the national PPSR.

The PPSR acts as a noticeboard where users record and search financial security interests registered by creditors.

A wide cross section of Australian industry groups are impacted by the PPSA. Motor vehicle leasing companies and banking institutions represent the largest volume of participants on the PPSR.

At the other end of the scale, organisations that provide trade credit or leasing services, specifically SMEs, are dramatically under-represented on the PPSR.

Navigating the PPSR: What SMEs need to know

While the larger credit providers tend to be well aware of the PPSA and its implications for their businesses, the same cannot be said for small businesses.

Equifax estimates that less than 15 per cent of businesses in Australia are registering on the PPSR. This estimate is strengthened by the fact that more than half of the nine million registrations currently on the PPSR are for motor vehicles.

One of the problems is that many SMEs don’t have in-house credit managers, which results in credit tasks being taken on by the business owners instead. Unfortunately, these employees are often unaware of the existence of the PPSR – the first time they hear about it is when one of their customers becomes insolvent and they need to reclaim their assets.

But even for small business owners that have done their research, registering on the PPSR can be a complex and daunting process.

Failing to register poses real risks

Small business owners need to be aware of the enormous benefits of registering on the PPSR and the equally serious risks of not doing so.

There is no legal requirement to register on the PPSR, but by failing to do so, SMEs may expose themselves to avoidable risks, such as losing assets leased to a customer that becomes insolvent.

Hire, rental and leasing companies are commonly affected when businesses become insolvent, particularly in the building and construction industry. Many businesses believe their equipment will be returned to them as it is branded with their livery, but this in many instances does not occur.

How to use the PPSR

For SMEs seeking to secure their interests using the PPSR, Equifax suggests these four steps:

1. Do a cost-benefit analysis – Do your research and determine if you should be registering your assets on the PPSR. If you supply goods and equipment that aren’t registered, assess the reasoning and consider if the PPSR is right for your business needs. 
2. Seek professional assistance – Find PPS experts who have experience and have helped others to register their assets. They will help to ensure your registration is accurate.
3. Clean up your data – Ensure your customer database is up-to-date. This is so you can register your interests against the company that has hired your assets correctly.
4. Look ahead – Develop a clear, simple process for managing your PPS portfolio so you can keep on top of your interests and ensure your property remains secure into the future.