Which Debt to Clear First When Cash Is Tight
Which business debt to clear first when cash is tight. The order across secured, statutory and supplier debt, and what a lender needs resolved first.
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Debt Priority / Cashflow / Business Finance
When cash is tight, the order you clear debts is a credit decision, not just a cash decision. This is the priority framework across secured financiers, the statutory creditor, supplier accounts and superannuation, and what a lender needs resolved before it can help.
Quick Answer
When cash is tight, clear the creditor who can stop you trading first, then the statutory obligations, then suppliers. The order is a credit decision, not just a cash one. See working capital for how each obligation reads on a file.
Why Is the Order You Clear Debts a Credit Decision?
Three questions set the order, and none of them is which invoice is loudest. The first is which creditor can stop the business trading. The second is which obligation, left unresolved, closes off the finance that would fix the rest. The third is which interest is actually costing you more once tax treatment is taken into account.
That framing matters because the order you clear debts is a credit decision, not just a cash decision. Most operators approach a tight month as a pure arithmetic problem, moving money toward whoever called last. A credit desk reads the same month differently. It looks at what got prioritised, what got left, and whether the pattern shows an operator with a plan or an operator reacting.
In deals I have seen, two businesses with identical bank balances present as completely different files depending purely on which obligations they kept current through a bad quarter. Nothing about the balance told you which was which.
None of this is advice about which creditor you should pay. That sits with you, your accountant and, where the position is genuinely unmanageable, a registered adviser or a free financial counselling service. The government's guidance on what to do when your business is in financial trouble sets out the support pathways and the warning signs before any finance conversation starts. What follows is the finance side view only.
The Creditor Who Can Stop You Trading Comes First
The one who can stop you trading, which in most self employed businesses is the secured financier holding the asset the revenue depends on. Losing that asset is unrecoverable in a way that a stretched supplier account is not.
- The secured financier on your revenue asset. If the truck, the plant, the fit out or the premises is what turns work into invoices, the facility secured against it is not negotiable in a tight month.
- Employee entitlements, including superannuation. These carry statutory weight and, since the timing change, they no longer offer the quiet flexibility they used to.
- The tax position. Statutory, carrying recovery powers, and now carrying interest you cannot deduct, which is covered further down.
- Other secured financiers. Facilities against assets the business could operate without, at least for a period, sit below the ones it cannot.
- Suppliers who can stall a job. A materials supplier holding your next delivery is commercially urgent even though it is not legally senior.
- Remaining trade creditors. Last in the ordering, which is not the same as saying they do not matter, because a supplier relationship is negotiable in a way that a registered security position is not.
Secured, statutory, then supplier is the working sequence, and the useful discipline is holding to it deliberately rather than defaulting to whoever escalated first.
Where Do Tax and Superannuation Sit in the Order?
Above suppliers and below the asset your revenue depends on, because they carry recovery powers and they show up hardest in a credit read. They are not more urgent week to week, but they are less forgiving over a quarter.
| Obligation | What sits behind it | How it reads on a file |
|---|---|---|
| Secured facility on a revenue asset | Repossession of the asset the business trades with | Arrears here are close to disqualifying on most files |
| Superannuation guarantee | The super guarantee charge, penalties and director exposure | Reads more seriously than trade debt, as an employee entitlement |
| Tax liability | Garnishee, disclosure to credit bureaus, director penalty notices | Workable if documented and engaged, blocking if neither |
| Trade creditors | Withheld supply, then ordinary debt recovery | Commercially relevant, rarely decisive on its own |
Where a tax position is the pressure point, the evidence question comes before the finance question, and the evidence pack a credit desk needs on an ATO debt file covers what that takes. Director exposure on unpaid super and tax is a legal question, and if a director penalty notice has arrived, that is a conversation for your solicitor and your registered tax adviser on the same day it lands.
Superannuation Now Moves With Every Pay Run
Payday Super has removed the timing flexibility that used to make super the easiest obligation to defer. From 1 July 2026 the quarterly due dates no longer apply at all. Under the ATO guidance on Payday Super, employers pay the super guarantee for each payday rather than quarterly, and contributions must be received by the employee's fund within 7 business days after payday, with a longer window of 20 business days for a new employee's first contribution. The super guarantee rate remains 12 per cent.
The last quarterly payment under the old rules was the June 2026 quarter, due in employees' funds by 28 July 2026. Every payday since 1 July has run on the new timing. There is no quarterly cycle left to manage around, which is precisely the point of the change.
For sequencing, that has pulled super forward for a lot of operators. An obligation that could previously be smoothed across a quarter now lands with every pay run, so it shows up in the account conduct a credit desk reads rather than in a lump nobody sees until the 28th. In practical terms, a business that is current on super and lodgement presents as a materially more workable file than one that is not, and the difference is now visible weekly rather than quarterly.
How that conduct feeds a limit is covered in how lenders size a working capital limit, and sizing a revolving facility around the new super timing covers the facility side of the same change. What the change means for your payroll systems and your obligations as an employer is a question for your accountant, not for a broker.
Why Does Non-Deductible Interest Reorder the Sequence?
Because interest you cannot deduct is more expensive than interest you can, even when the headline rate looks lower. Under the ATO guidance on denying deductions for ATO interest charges, general interest charge and shortfall interest charge incurred on or after 1 July 2025 are no longer deductible, regardless of whether the debt relates to an earlier income year, and the change applies differently to entities with a substituted accounting period.
The rate is not a small one. The ATO publishes the general interest charge rate quarterly, and for the July to September 2026 quarter it is 11.43% a year, with the shortfall interest charge at 7.43%. It is set by formula rather than by discretion, the 90 day bank bill rate plus 7 percentage points, so it sits above ordinary commercial pricing by design and it compounds daily on the running balance.
The sequencing point is narrow and it is the one nobody connects. If two obligations are otherwise equal in urgency, the one carrying non-deductible interest is the more expensive one to leave sitting, and on a six figure balance the difference is several thousand dollars a year that never shows up on either statement. That quietly reorders a lot of tight months that would previously have been run on headline rate alone.
The full cost comparison, borrowed interest against the ATO charge, is worked through in the working capital loan and ATO debt comparison, and this post deliberately does not repeat it. The same logic is why the secured tier stays current: the cheapest money in most businesses is the facility already in place at an established rate, and secured funding generally prices below unsecured for the same operator.
How Do You Work the Order, Stage by Stage?
In stages, not in one sitting, because each step produces something the next step needs. By the time a finance conversation happens the file is then already assembled rather than being reconstructed under pressure.
The order, stage by stage
Step labels above are stages, not deadlines, and the timing that suits your business is the timing to use.
Which Facility Fits Once the Order Is Set?
Whichever one matches the security you actually have, not the size of the pressure you feel. Security available is the routing question, and it is a different question to the ordering one.
| Security available | Route it opens | What that shape suits |
|---|---|---|
| Property equity | A second mortgage, or a caveat loan where timing is short | A defined lump with a clear exit, priced against the equity |
| Plant and vehicles | A chattel mortgage or refinance of an owned asset | Releasing value already sitting in equipment you own |
| Receivables | Invoice finance against the debtor ledger | A timing gap between invoicing and payment, not a loss |
| Trading conduct only | An unsecured term facility or a revolving limit | Modest amounts where account conduct carries the file |
| None of the above | Private lending, at a cost that reflects the position | Positions the mainstream will not consider, with a short exit |
Sizing is its own discipline and is worth understanding before any conversation, because a limit set to the wrong number creates a second problem. Where the choice is between a property secured route and a cashflow route, the second mortgage and working capital decision tree maps it out, and if a property payout is the likely answer, how the payout runs at settlement covers the day itself.
One Facility or Several: Which Problem Are You Solving?
It depends on whether your problem is total cost or monthly timing, because the two approaches solve different problems and the wrong one makes the position worse.
| Approach | The problem it solves | What it costs you |
|---|---|---|
| Consolidate into one facility | A run rate spread across too many due dates to manage | A cheap existing facility may be repriced or lost |
| Clear selectively, keep the rest | Total cost, by retiring the most expensive obligation first | The administrative load of several facilities stays |
| Do neither, extend an arrangement | Immediate cash pressure, without new debt | Non-deductible interest keeps accruing on the tax position |
A broker can map which obligations a facility can practically retire and which are better handled directly. If clearing the balance is the plan and a home loan is the next step, the One Doc read after a tax debt is cleared covers how the year in which you cleared it gets assessed. Where equipment is the asset being restructured between entities, what funders check on a related party plant purchase sets out the evidence that transaction needs.
When cash is tight, the sequence is secured, statutory, then supplier, and it holds because it protects the ability to trade first and the ability to raise finance second. Two things have shifted the statutory tier upward. Payday Super has removed the quarterly smoothing that made super the easiest obligation to defer, and non-deductible interest has made a tax liability more expensive to leave sitting than the headline rate suggests. The order is not about which creditor is loudest. It is about which obligations, once resolved, leave a file a lender can actually work with.
Key takeaway: Clear in the order that protects trading first and finance second, and the facility conversation gets much shorter.Frequently Asked Questions
The one attached to the creditor who can stop you trading, which usually means a secured financier holding the asset your revenue depends on, then the statutory obligations, then supplier accounts. Secured, statutory, then supplier is the working sequence, and it holds because losing the ability to trade is unrecoverable in a way a stretched supplier account is not. Where the picture is unmanageable, the first call belongs to a registered adviser or a free financial counselling service. The security ranking entry explains each position.
Yes. From 1 July 2026 the quarterly due dates no longer apply. Employers pay the super guarantee each payday, and contributions must be received by the employee's fund within 7 business days after payday, with 20 business days for a new employee's first contribution. The rate remains 12 per cent. The last quarterly payment was the June 2026 quarter, due by 28 July 2026. What this means for your payroll is a question for your accountant, and how lenders size a working capital limit covers the finance side.
No, not for charges incurred on or after 1 July 2025. General interest charge and shortfall interest charge incurred from that date are no longer deductible, regardless of whether the debt relates to an earlier income year, and the change applies differently to entities with a substituted accounting period. That makes a tax liability more expensive to carry than the headline rate suggests, which is why it moves up the sequence. What it means for your return is a question for your registered tax adviser, and the mechanics sit under tax deduction.
It is a structure lenders do see, and whether it is available depends far more on the evidence behind the position than on the debt itself. The cost comparison between borrowed interest and the ATO interest charge is a separate question covered in the working capital loan and ATO debt comparison. Speak to a broker about what your position supports before assuming any facility is available, and no outcome should be assumed before the file is assessed.
It depends on whether the issue is total cost or monthly timing, because the two solve different problems. Consolidation into a single facility such as a working capital loan can simplify the run rate but may reprice or retire a cheap existing facility. Clearing selectively keeps that cheap facility untouched and targets the most expensive obligation, at the cost of continuing to manage several due dates. A broker can map which obligations a facility can practically retire and which are better handled directly.
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