Top Ten Warning Signs for Creditors

1. Your company cannot get new credit or extend existing credit.
2. You do not pay to creditor’s terms.
3. You have had red warning letters.
4. Creditors regularly phone you chasing payment.
5. You spread credit around by opening accounts with new suppliers.
6. You have had a Court summons or judgment.
7. You have arranged deals with creditors to pay them over time.
8. You have broken promises to creditors.
9. You have had visits from Sheriffs or bailiffs.
10. You have had a statutory demand or a winding up petition.

In our experience the cashflow pressure that distressed businesses suffer starts quite early on. The directors get used to dealing with minor issues; however they often grow into much bigger issues quite quickly. Failure to collect debtor payments on time can lead to missed payments to creditors. This leads to loss of trust and the breakdown of communication.

Talk to your suppliers and creditors – it is common sense to involve them otherwise they will feel that you are wilfully avoiding them.
Doing deals with creditors over time can be a successful way to deal with cashflow problems. However, as a director or an advisor you should be asking the bigger picture questions such as:

• Is the business viable?
• Can we make profits over the next period?
• Are we missing the fact that our cost base is much too high for our income levels?
• Should we be taking advice from turnaround advisers?

Doing deals with creditors?

In all such circumstances we recommend building a cashflow projection that is realistic and apply common sense to it – what happens if a promised customer payment does not come in on time? Will you be able to meet promised creditors’ payments? So always ensure that the payments that are required or promised are based on cashflow and profitability.

Do not forget things like PAYE, VAT and bank loans, direct debits etc. These are easily forecastable as are salary payments, rent etc. Make sure that all payments promised are achieved otherwise the creditor may take legal action.

If your cashflow projection shows a deficiency (in other words you need more income / investment / bank facility than is available) then take advice from KSA now.