If your business is starting to experience signs of financial distress unrelated to the coronavirus pandemic or as a direct result of Covid-19 trading pressures, restructuring liabilities and fast-tracking the retrieval of pending payments can help stabilise the business. By tackling liabilities head-on, enforcing measures to speed up your income stream and seeking the necessary financial support, you can strengthen the financial standing of your business and withstand rough trading conditions.
Overhaul Credit Control Strategy
If your income stream is drying up due to payment delays, missed deadlines and longer turnaround times, retrieve your cash by overhauling your credit control system, scheduling reminders and making the payment process more accessible. By enforcing a strict strategy which illustrates to the debtor that you’re serious about your payment deadline, you can reduce the likelihood of bad debt and encourage faster payments.
Poor credit control systems can fail to recoup debts which can quickly bite into company cash flow, stagger operations and limit the funds available to replenish stock. Once the likelihood of receiving payment from a debtor is extinguished, this is classed as bad debt, classing the owed money as uncollectible.
If your business is struggling due to non-payment from suppliers, accessing debt recovery services can stop late payers and bad debt.
Enforcing Legal Action
If you have made several attempts to recover funds from a debtor and exhausted the possibility of collecting your debt, you can take legal action if the debt owed to your business is over £750. A Statutory Demand is a formal notice which can be issued by a creditor to a debtor to demand repayment, stating that failure to do so could result in court proceedings. If an agreement has not been made or the debt repaid within 21 days, you can submit a winding up petition against the business.
A winding up petition is a request to the court to issue an order to wind up the indebted business as it is insolvent and therefore unable to repay company debts. If the winding up order is successfully granted, the debtor will be forced to liquidate the business and realise assets to repay creditors.
If longer payment waiting times are typical of your industry, you may turn to invoice finance to release cash tied up in invoices. This can help you ease the strain on your income levels and continue trading without any limitations to cash flow. Invoice finance allows you to borrow funds which are yet to be received for services provided, reducing the amount of time you would otherwise spend waiting for payments to clear.
By cutting out the time spent chasing payments, you can access the funds in advance and direct these back into business investment and company growth. Invoice finance is strictly available to viable businesses and eligibility may have tightened due to the coronavirus pandemic, limiting access to businesses hindered by Covid-19 pressures.
There are multiple financial support schemes which can also inject your business with cash and allow for further investment into business operations. Acting early can prevent your business from deteriorating and experiencing serious financial distress which could result in company closure.
Time to Pay Arrangement
A Time to Pay Arrangement (TTP) is a formal agreement with HMRC to restructure tax liabilities into affordable instalments, typically over 12 months. This provides breathing space to your business when planning tax repayments, such as VAT, PAYE and Corporation Tax.
This instalment plan can help you keep on top of payments, however, HMRC is only likely to agree to your proposal if it is realistic and you can afford to make the specified repayments. If you default on payments, HMRC will cancel the TTP arrangement which can leave you exposed to legal action from creditors.
Company Voluntary Arrangement
A Company Voluntary Arrangement (CVA) is a formal insolvency procedure which can restructure liabilities and rescue your business from prospects of insolvency. It allows you to split creditor debts into affordable instalments over 3-5 years, giving you the financial flexibility to continue trading. This route can protect the business from the threat of legal action and help settle outstanding affairs with creditors by striking a mutual agreement.
Phil Clark is a consultant at Begbies Traynor Group, UK’s leading business recovery practice made up of highly experienced, licensed insolvency practitioners and business rescue experts. Phil offers direct support to company directors and stakeholders concerned about the financial health of their businesses, including a free Covid-19 business health check for Chamber members.
Phil Clark, Begbies Traynor
Call: 0151 227 4010 or 07776 187999