Debt can affect any size business. Things don’t always go as planned, despite your best efforts. A variety of issues can cause a company to lose money and, as a result, struggle to repay it. Worst case scenario, this could harm the company’s finances in the long run, potentially jeopardising its future.
If a company is experiencing financial difficulties, directors have several options. Which is best will be determined by the level of debt the company is facing and what kind of situation the businesses finds itself in.
Cash is king
Keeping cash flow healthy is vital to a company’s financial stability, therefore why organisations invest time preparing cash flow predictions and financial planning. Projecting potential incomings and outgoings enables the company to plan ahead, minimising the risk of sudden expenses knocking the business off course.
Despite all the planning in the world, not every situation is always thought of and can be factored into a potential business plan. It could be something as common as clients not paying on time properly, or a piece of machinery breaking down at huge expense to the business.
If the cash issues the business is facing is down to purely a short-term problem, a financial aid, or cash-injection might be the best way to get things back on track. Bank loans, or invoice finance will often be the most efficient ways of providing a much-needed ease on the cashflow within the company.
Deal with creditors
One of the most difficult parts of a company turning bankrupt or being unable to fulfil its liabilities, is creditor pressure. Creditor pressure, if not handled properly, can have serious consequences for the company and its directors. Repayment reminders sent by phone or letter can result in County Court Judgements (CCJs) and Statutory Demands, which can have an impact on the company’s credit file if ignored. Bailiffs may even show up to repossess assets worth the amount of the debts.
A structured repayment plan might give crucial breathing room if creditor pressure is too much for your company. If applicable, however, you could turn to a formal repayment plan, in the form of a Company Voluntary Arrangement (CVA) as a means of dealing with the debt in question. This puts the company in a formal, legally binding repayment arrangement, wherein it repays an agreed portion of its debt, with an insolvency practitioner acting as a medium between the company and its creditors. CVAs typically last five years, after which the remaining unpayable, unsecured debts are written off. A significant selling feature of a CVA is that lets the firm to continue running throughout the arrangement’s lifetime, retaining goodwill with current clients and allowing personnel to keep their employment.
Don’t ignore the warning signs
Companies that disregard repayment reminders and subsequent action may result in creditors pursuing the most severe type of debt action. By filing a winding-up petition, creditors can force companies to cease operations. If the petition is unopposed, it becomes a winding-up order, which freezes the company’s financial accounts and forces it into compulsory liquidation.
If the debts are of such a degree that repaying them isn’t viable, and the firm is beyond realistically rescuing, you should contact a licenced insolvency practitioner who can place the company into liquidation. Entering a Creditors Voluntary Liquidation (CVL) permits you to liquidate the firm before the creditors force you into liquidation.
Summary
Despite your best efforts, your company wont always be able to escape debt. . Short-term cash flow problems can benefit from the various different forms of commercial finance, either as a means of plugging the gap left by a late-paying client, or replacing broken, outdated assets such as machinery. When facing larger debts, with creditors hassling for recovery, formal repayment plans, could be the solution heading forward. Sometimes, however, the best thing that can be done is closing down the business and starting again, chasing bad money to rescue something, usually puts a business in a worse position.
