Recognising that you need help with business debts is essential. So many directors deny business debt reality and believe that the problem will go away or is not really there.
Debts can increase as sales increase. If the business is taking orders, then it may have to increase costs before it gets money in from the customer. This can be in the form of increased PAYE liabilities or the cost rent, rates and of materials etc. When a business gets too far into debt when the sales pick up, this is termed as "overtrading" and a cashflow crunch can derail the business. Why? Well cash is king! We regularly see companies enter insolvency with record sales and good margins, they just need more working capital.
So, what action can I take to tackle the debt?
It may be that you are owed money but can't collect it in quick enough. Factoring or invoice discounting can sometimes help with this. See our sister website https://www.companyfundingoptions.co.uk/ for more about these solutions to cashflow problems.
Business debt solutions?
1. Time to Pay Arrangement with creditors
Your company can agree with a creditor to pay off the debt over an extended time period. You can take action to have the debts written off in full or in part.
We can advise you on what actions to take. We are happy to talk through the options with company directors and can issue a 30 page solutions report.
We look at the following options:
- Company Voluntary Arrangement (CVA)
- Pre Pack Administration
- Administration or trade sale
- Liquidation or Phoenix
- Informal Time to Pay creditors in full or in part.
- Business Asset Sales
You will need to be mindful of any offers to lend the business more money, as this might just add to the debt of the business without addressing the underlying problems. Personal guarantees are usually required for new business debt solutions like loans and factoring.
If the company is viable going forwards and needs a reduced level of debt, then in order to have any of the debts written off, the company is likely to have to enter into a formal arrangement, such as a company voluntary arrangement. It is possible to have an informal arrangement with creditors, but it tends to work best with just one or two creditors, most notably HMRC. Where there are lots of creditors a formal process like CVA ensures a degree of control over the creditor actions.
If some creditors become particularly aggressive in collecting a debt, such as issuing a winding up petition, it can have serious consequences.
Request our free worried directors guide which gives you much more support and business debt solutions. Aimed at worried directors it can supply all the answers you need to help turn your business around.
So, ensure that you ask for help and advice as soon as debts become a worry. Call us on 08009700539 … the earlier that you address it the easier it is to solve.
Worried about poor cashflow? Feel you have got into a bit of a mess? Covid-19?, How to pay wages on pay day? For reassuring 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 includes updates due to Covid-19 For instance there have been some changes to insolvency legislation that limits creditors actions. A new 20 day moratorium for distressed businesses has also been introduced.