You’re borrowing from one account to pay another.

A transfer clears one account and empties another

A transport owner transfers money from a personal overdraft into the company account to pay a finance instalment. A few days later, company receipts repay the personal overdraft, leaving fuel bills short. The owner then uses another facility. Each account briefly looks healthier, but the business cannot show which trading receipts will finally repay the combined borrowing.

Draw the transfer chain

List the accounts, legal owners, facilities and dates involved. Identify whether each movement is a loan, repayment, reimbursement or transfer within the same entity. Keep supporting bank records.

Do not record borrowed money as sales. An accountant should help reconcile director or related-party loan balances so the company’s position is not improved artificially by misclassification.

Remove internal movements from receipts

Prepare a combined view that shows genuine outside receipts separately from recycled funds. A transfer out of one account and into another should not appear as fresh earning capacity.

Business.gov.au’s cash-flow approach tracks inflows and outflows. For this review, explain the source of each inflow so a borrowed amount is not mistaken for a customer paying for profitable work.

Source: business.gov.au — Set up a cash flow statement

Identify the final repayment source

For each facility, name the receipt or available asset expected to reduce the debt and when it can realistically do so. Test the effect of delays, fees and any minimum repayments.

If the answer is always another account, the chain has no demonstrated exit. Avoid extending it through further personal security before obtaining independent advice on the whole position.

Put controls around further transfers

Agree who can approve movements between entities and what documentation is required. Review proposed related-party repayments carefully where solvency is uncertain; a convenient transfer can have consequences beyond bookkeeping.

Seek specialist advice promptly if due debts cannot be met without continual new borrowing. Accurate records make that discussion much more useful than a set of temporarily positive bank balances.

Source: ASIC — Insolvency for directors

Find where the repayment chain actually ends

Map transfers by legal owner and purpose.

Separate customer receipts from recycled borrowing.

Identify a credible final repayment source for each facility.

Call CRP today to coordinate a review of the borrowing chain and underlying cash position.