Three steps to help self-employed clients avoid or navigate arrears

A recent study by CreditorWatch found that more than 80% of Australian businesses have encountered cash flow challenges in the past six months*, with small businesses facing these issues at three times the rate of larger companies.

Small businesses often work with tight margins, and when combined with cash flow issues and current inflationary pressures, this can significantly hinder their capacity to manage household budgets and meet mortgage obligations.

As part of our commitment to advocating for self-employed Australians and providing them with practical guidance, our CEO, Ryan Gair, and CSOO, Gus Mendez, recently participated in a Broker Series webinar on arrears with FBAA’s Peter White AM to explore these challenges in detail.

The webinar explained the importance of the broker-client relationship when financial pressures arise, how brokers can educate their self-employed clients to avoid arrears, and how to support them if they find themselves behind on payments.

1. Educate and prepare 

The best defence is a good offence, and the best way to help a client avoid arrears altogether is to create robust household and business budgets, allowing for any potential cash flow disruptions.

It’s also just as important for brokers to prioritise their own education. Developing a deep understanding of the mortgage industry, the property market and accounting concepts allows them to become an invaluable source of information to their clients over time.

2. Communicate 

If financial stressors begin to take a toll, the most important step is to maintain clear communication between client, broker and lender.

Learn to ask the right questions of your client so you can get a clear picture of their stressors — interest rates, debt, and cashflow issues — and goals. This allows you to help them make an informed choice for the next steps while building a relationship of trust that will hold both parties in good stead into the future.

3. Offer practical solutions 

Sometimes, both the problem and solution are temporary. For example, if cash flow and budget allow, negotiating a payment plan or requesting a repayment holiday from the lender could be the straightforward fix that’s needed.

However, if a client has moved into further arrears and missed two or more payments, the solutions may need to be more involved. Depending on the circumstances, this could mean vacating the home to rent it out for a time, approaching a non-bank lender to combine debts and refinance, or eventually selling the property.

Self-employed Australians are experiencing significant financial challenges. Learning how to effectively guide your self-employed clients through these challenges will allow them to move forward with confidence, while at the same time creating the foundation on which you build a customer for life. 

*https://www.theadviser.com.au/borrower/45196-over-80-of-businesses-experienced-late-payments-creditorwatch