Business and Company Debt Advice

Written by Robert Moore Marketing Manager 19 October 2020

Business and Company Debt Advice

A very common challenge facing many businesses, is a build-up of debt.

What is business debt?

Business debt is when money which is owed, cannot be paid. A good signal that the business is experiencing debt issues is when the business (or company) lacks a steady stream of cash flow.

In limited companies, the debt belongs to the company and not the individual, due to the protection provided by ‘limited liability’. Whereas, if you are a sole trader, limited liability is not applicable, so any debts accrued as a sole trader are personal.

A company that is in ‘debt’ sounds negative but do not worry - borrowing money is essential in any economy for businesses to thrive. Debt is needed as it may be part of a structured growth plan i.e. borrowing some capital to purchase new machinery. This is acceptable as the debt the company gets into to purchase the new machine, is likely to be returned, once the machine is up and running and generating cash.

However, it is when the borrowing is not planned for and managed, that it can lead to problems and potentially push a company into insolvency (see our page here where one of the tests for insolvency refers to company debts/liabilities outweighing assets). The one thing that you should not do is ignore company debts as it is likely by doing this, it will spiral out of control.

The debt ratio method is a test to assess the appropriateness of your business debt. Simply divide the company’s total liabilities by its total assets. If the result is 0.4 or below, the debt is low risk. If the result is 0.6 or more, the debt is high risk.

At Company Rescue, we have experts who can help you with any business debts, providing useful advice and any information needed. See some common reasons for company debt here and see how we can help you.

Ideally, we recommend you repay your debts, as and when you can, if possible. In doing this, an order of priority should be followed, depending on the likelihood of the creditor issuing a statutory demand:

Prioritise; HMRC (National Insurance, Income Tax, PAYE, VAT, Business rates), business rent payments, accountant bills and supplier debts

Less priority can be given to; payday and one-off loans, non-essential business suppliers, credit cards and overdrafts.

If debts continue being accrued…take steps to rectify the situation ASAP

What options do I have?

  1. Apply for finance; both short-term and long-term options exist
  2. Look into cutting costs
  3. HMRC are the UKs biggest creditor and usually the ones companies are in debt too, so why not ask them for a Time to Pay Agreement – a monthly repayment plan
  4. Consider a Company Voluntary Arrangement – work alongside insolvency practitioners like ourselves, who can assist you in reaching an agreement with business creditors, to repay the debts overtime
  5. Before it becomes compulsory and forced upon by angry creditors, why not choose a voluntary liquidation – avoid a winding up petition and get on with your life!

Be aware…

Even though a limited company provides some protection for directors you can still be found liable for company debt and potentially have your personal credit rating affected if;

  • You, as a director, have signed a personal guarantee contract
  • Wrongful or fraudulent trading has been engaged in
  • There has been activity of transaction at undervalue
  • An overdrawn directors loan exists

Contact us today for any assistance if your company falls into debt troubles. We have great experience in this area and are always happy to give our best advice.

Categories: Implications for Directors

A Worried Director

The Ultimate Guide For Worried Directors

Worried about poor cashflow? Covid-19?, How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539

Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading.  A new 20 day moratorium for distressed businesses has also been introduced. 

"KSA Group which owns this site, will help you fix problems in your business. We won't charge for any initial advice or face to face meetings. We speak in English. We will save you money and your precious time.  You can come to any of our offices

"We also follow up any meeting with a full "solutions report" which runs on average to 30 pages valuable free advice!!  No other practitioner offers this service.  In this report we advise on ALL the options and explain them clearly.  We advise on a course of action given the information you have given us ( the more information we have the better we can advise!)"

You are currently offline. Some pages or content may fail to load.