Financial Systems

Appropriate Management of Short-Term and Long-Term Debt

Appropriate Management of Short-Term Debt


Paying Creditors on Time to Obtain Discounts

The business should take advantage of any discounts offered by creditors for early repayment of debts. If there are no discounts, short-term debt should be paid within 12 months.


Separation of Duties

The role of handling of creditors and recording of accounts payable should be separate to reduce the chance of fraud.


Double Checking of Liabilities

Payments requested by creditors should be double-checked to ensure they are the correct amounts. Common scams that affect businesses are 'fake billings' that send businesses fake invoices for generally small amounts of money which are paid without checking if the debt was actually incurred by the business.


Liquidity Risk

Short-term debt generally should not exceed the level of liquid assets. Situations, where short-term debt exceeds liquid assets, is an indicator of increased risk of default on short-term debt and could be an indicator of insolvency.


Appropriate Managment of Long-Term Debt

Authorisation of Large Long-Term Debt

Large long-term debt should be double checked and approved by a senior employee with an appropriate role in the business.



Debt Should be Sustainable

The business should only take on further debt if it is sustainable. The business should financially plan the repayment of debt, ensuring that operating cash flows are sufficient in ensuring a positive cash balance.


ABN: 87 574 760 103

  • Facebook - Black Circle
  • YouTube - Black Circle

"ATAR" is a registered trademark of Monash University as a Trustee For The Victorian Tertiary Admission Centre .The School Curriculum and Standards Authority (SCSA) have no involvement in or responsibility for any material appearing on this site. Nor does SCSA endorse or make any warranties regarding the study resources, current and past WACE exams available on this site or sold by Christian Bien. 

Copyright © 2020 Christian Bien at the ATAR Survival Guide