After the challenges posed by the Coronavirus pandemic, many businesses in the UK face difficulties paying their debts, particularly when paying key suppliers. This can strain relationships and lead to tighter payment terms.
There might be a temptation to prioritise certain suppliers to keep the business afloat. However, favouring specific creditors can create legal risks if your business is already insolvent.
It's crucial to assess your solvency and seek experienced advice and assistance, which we can provide.
Experiencing cash flow problems is common for most businesses at some point. However, it's still a serious situation. Losing a key customer can result in more money leaving your business than coming in. While this can be a short-term issue that resolves by finding a replacement customer, you still need to pay your suppliers and other creditors.
Suppliers may agree to extend payment terms, but it raises concerns if you consistently fail to pay on time. As a small business owner, you must consider your situation and carefully understand your responsibilities.
Many small business owners feel embarrassed and worried when communicating with suppliers about late payments. We can assist if needed, please feel free to contact our team.
When you cannot pay suppliers, creditor pressure will mount over time. You may receive final demand letters and face threats of further action, which can harm your credit rating.
It's crucial for business owners to act swiftly to resolve the situation. But what can you do?
As long as your primary aim is to act in the best interests of your creditors, you don't necessarily have to cease trading. However, you must demonstrate that there is a realistic prospect of repaying the debt in full in the future.
Continuing to trade while insolvent can have serious consequences if there's no genuine possibility of repaying your creditors. Familiarise yourself with wrongful trading to understand the potential implications and maintain accurate records of your actions.
Dealing with creditor pressure is unpleasant, but it's essential to maintain regular communication with your suppliers. Ignoring their emails and phone calls will only worsen the situation.
Don't ignore supplier pressure. Keep the lines of communication open, and you might be surprised by their willingness to extend payment terms or find other arrangements.
One option is to prepare a well-worded letter explaining your position, supported by relevant information that reassures suppliers. We have assisted many small business clients, so please contact us for help.
Consider utilising the value in your business assets to access the capital needed to pay suppliers. As Insolvency practitioners, we can help in doing this and possibly facilitating a business rescue.
You can secure a loan against machinery or equipment or explore invoice finance options that involve selling your invoices to a finance provider.
Invoice finance is increasingly popular among SMEs as it injects cash into the business as soon as invoices are issued. This reduces the impact of late payments, which threaten the survival of numerous businesses. Moreover, the borrowing amount can increase in line with your sales turnover.
If you believe your business will become profitable again after overcoming a temporary cash-flow crisis, you may consider a company voluntary arrangement (CVA) if you run a limited company.
A CVA can halt legal action initiated by your creditors and freeze interest and charges on the debt. Once agreed upon with your creditors, a CVA enables you to consolidate your debts into a monthly payment plan, typically spanning five years. If you keep up with the repayments, you'll be protected from further supplier pressure and can continue trading.
If your suppliers threaten to put your business at risk, a Creditors Voluntary Liquidation could be an option to consider. Once the court grants the administration order, your creditors won't be able to take action to shut down your business.
During administration, we, as your insolvency practitioner, will act as your interim CEO and take control of your business. Our main objective is to facilitate recovery and minimise your debts.
If you feel your company has reached its limit and you simply want to be free from debt, voluntary liquidation (Creditors' Voluntary Liquidation) might be the right course of action.
Liquidating the company involves having your debts written off, ceasing trading, and closing down the company. A licensed insolvency practitioner must carry it out.
Many small business owners feel embarrassed and worried about discussing late payments with their suppliers. We can assist if needed. Please don't hesitate to reach out to us.
Honest and open communication is recommended. Clearly explain your situation to suppliers and provide a timeframe for payment if it's likely. Suppliers will appreciate the transparency, and it may lead to the possibility of extended payment terms to help you through this challenging period.
For further information or if you are seeking business financial advice, please contact our dedicated team.
Telephone: 0345 260 0101
Email: enquiries@frostbr.co.uk
At Frost Group, we want to make things as easy as possible for you. That is why, if you can’t come to us, we’ll come to you. We operate face to face, nationwide meetings, wherever is most convenient for you.
Court House,
Old Police Station South Street,
Ashby de la ZouchLE65 1BR
0345 260 0101
enquiries@frostbr.co.uk
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