July, 2019

Are You Coming under Creditor Pressure?

Running a company is a hard enough at the best of times and you really don’t want the added problems that arise when creditors start to pressure you for payment. This article looks at how this situation can arise and what you can do to resolve it.

How did this happen?

Most companies are part of a chain with suppliers and customers. It is usual to have to pay suppliers before receiving the payment from customers and ideally a company will have enough money in the bank, being part of its working capital, to be able do this. However a change in circumstances can mean this is not the case. Causes of this include:

Business is slower than forecast and your levels of stock means your working capital is depleted
Suppliers have altered their terms of business and require earlier payment
Customers have become slower in paying you or indeed altered their terms giving them longer to pay
Your overheads such as rent, rates and utilities etc. have to be paid before your customers pay you
All of which can mean you have a pile of bills that you cannot pay on time and the one thing you must not do is nothing. Simply hoping the situation will resolve itself could be disastrous for your business.

As is often the case the problems can start to appear as relatively minor with an occasional chasing phone call from a creditor. However they will then quickly start to escalate from constant reminders, through the threat of legal action to actual legal action that could result in your company’s liquidation.

What actions can creditors take?

When your company owes money to its creditors, they have a right to collect their debts and they can be extremely persistent in pursuing them. If your company can’t afford to pay its creditors, they also have the right to take action to ensure they can recover what is outstanding. These can include:

The use of debt collections agencies
Selling the debt to another company
Seizing any assets as part of legal proceedings, some of which could be crucial to your business
Issuing a statutory demand which can lead to your company being wound up.
Each of these is entirely legal if the correct processes are followed and in particular the last two could lead to your business failing.

And what cannot they do?

Although it is only reasonable that a company that is owed money has the right to pursue payment, there are limits to their actions to achieve this. Harassment of you or your staff either by the company or third party collection agencies is not permitted. Harassment covers:

Over frequent or threatening calls or communications
Intimidating visits to your company’s premises
Misleading information on the consequences of not paying the debt
In addition creditors are restricted in what they can tell colleagues and other companies about the debt. If you think that a creditor has overstepped the mark on any of these points you should look for expert advice on how this can be stopped and in some cases it can lead to creditors being fined and other penalties.

What should you do?

You must take action as soon as the problem becomes apparent. The first step is to truly understand the situation that your company is in and decide whether the problems are resolvable. Is your business model still robust in today’s every changing marketplace? This should not include hoping for the best but rather take a very prudent view of the future and acting accordingly. Taking this approach in mind you can look at a range of options:

How the problem can be overcome:

Taking out a loan as a short-term solution if the problem really is temporary. This would preferably be unsecured, but if security is required think very carefully of the consequences of being unable to pay
Invoice factoring, especially if the problem is caused by the time between having to pay suppliers and receiving payment from customers
Injecting more working capital into the company, share capital or directors loans.

If the problem is permanent then the solution may need to include looking at:

Entering the company into Administration
A Company Voluntary Arrangement (CVA).

Your next steps

To reiterate, as with every important finance issue quick action is crucial to achieving the best outcome and doing nothing is a mistake. Since every company has unique factors affecting it, expert advice should be sought to help you find the best way forward.

If you would like to talk to us about this or any other financial issues that are worrying you or have any questions about this topic then please email me at vee@navigatebr.com or call on 01494 786000 and 07961 116321.

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DISCLAIMER This blog / article is for information and interest only. It is not a substitute for full professional advice, which will take account of the specific and individual circumstances surrounding your matter. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.