Supplying goods on credit

Are your goods protected under the Personal Property Securities Act 1993?

If you are in the business of supplying goods on deferred payment or credit terms then you should be:

• Ensuring you have up to date terms of trade that allow you to remain the owner of the goods until the customer pays for them;
• Ensuring each customer agrees to your terms of trade in writing; and
• Registering your interest as an owner of those goods on the Personal Property Securities Register (PPSR) within the correct time. 

We often see businesses completing steps one and two thinking they can rely on their retention of title clause if the customer fails to pay them.  However, this is not enough.  If you want to reclaim your goods (or the proceeds of sale) due to a default, or in a receivership or liquidation, you MUST register your interest as an owner of the goods on the PPSR.

How does a financing statement further protect my security interest in the goods I supply?

If your customer defaults or goes in to liquidation, their assets are usually sold and the proceeds are used to repay as many of their debts as possible.  Normally there will be a number of competing creditors lining up for a share of the sale proceeds.  If you have completed all of the above steps correctly, you will obtain a ‘super priority’ in the goods; otherwise known as a ‘purchase money security interest’ (PMSI).  A PMSI allows you to reclaim your goods, or the proceeds arising from the sale of them, ahead of all of your customer's other creditors.  If you fail to complete these steps, you will likely lose the goods and have no ability to recover the outstanding debt from your customer.

Correct Registration

To obtain a "super priority" or PMSI you must comply with the following applicable requirements:

• If the goods are vehicles, the make, model, year, registration number, and vehicle identification number and/or chassis number (if applicable) of each vehicle must be included when registering your financing statement against your customer.
• If the goods are inventory (from your customer’s perspective), you must register your financing statement before your customer obtains possession of the goods.
• If the goods are intangibles (for example, a patent), you must register your financing statement within 10 working days of your security interest ‘attaching’.  Attachment occurs when value is given by you (for example, advancing money to your customer to purchase the patent), the customer has rights in the intangible (for example, licence granted to use the patent) and the security agreement is enforceable (which requires your terms of trade to have been correctly signed by your customer).
• If the goods are anything other than inventory or intangibles (such as equipment), you must register your financing statement within 10 working days of your customer obtaining possession of the goods.

If you don’t comply with these requirements, you will lose your PMSI and other creditors who registered before you (often a general security registered by a bank) will claim your goods or the proceeds arising from the sale of them.

Note that if your customer is a regular customer, you only have to register one financing statement in relation to all goods you supply to them from time to time (unless those goods are vehicles). 

Our commercial team is happy to review and discuss your existing terms of trade to ensure your title and other interests in all goods supplied to your customers are protected.  We also provide training and advice on how to register financing statements on the PPSR which includes assisting you with drafting the correct descriptions for your goods to use when registering.