Facing creditor pressure in any walk of life is one of the most stressful things a person can experience; in fact, according to FinCap it is estimated that 39% of UK adults experience money-related stress every year. As for business owners, according to Mental Health UK, four in five are experiencing mental health struggling, many relating to their business’s future, which shows that if you are in a difficult financial position with your business, you’re not alone.
This, however, does not serve reassurance, especially in the current economic climate and growing uncertainty across the globe and, precisely, the UK. As the prices of energy, food, fuel, and housing rise dramatically, this impact directly affects businesses across the country. Due to the nature of the cost-of-living crisis, companies are now posed with new financial threats on top of the risks of being a business owner.
Operating a business as such to cover business expenses and overheads and still turn a profit is now being overshadowed by even being able to afford sky-high bills. Without approaching these issues from a negative perspective, it is still advisable to have financial plans in place to offset any pressures that your business may face now or in the future.
What is important to remember is that you never have to face anything alone – at Fortis Business Rescue, we are here to help you through difficult times and ensure you are supported throughout.
Understanding Creditor Pressure
We’re all in the business of making money. For the most part, your creditors will be other business owners just like you looking to get their invoices paid so they can, in turn, pay off their creditors and keep business operations moving.
In other circumstances, you’re likely dealing with tax bills from HMRC and business, investment, and bank loans – all of which operate on different credit terms. Understanding your credit terms with each creditor and supplier is fundamental in relieving pressure and effectively controlling your cash flow.
If these credit terms are breached, your creditors have a few tools at their disposal, depending on the debt you accrued. The most common of these is the County Court Judgement (CCJ) which can have a devastating effect on your ability to acquire future credit lines and can even lead to the liquidation of your company.
Creditors may also employ private debt collectors to recover debts; they may begin adding interest to the debt accrued, and they may look to pursue legal action via statutory demands.
Ignoring Creditors Won’t Make Them Go Away
It can be easy to turn a blind eye to creditors and hope they will eventually give up on the pursual of their debt, but this isn’t the case and will cause you far more stress in the long term. Creditors such as HMRC are incredibly aggressive and will continue to chase the monies owed for as long as they need, and as they are a government body, you may even face prison time for not complying with their demands.
Creditor pressure and money stresses are enormous contributors to mental health issues, poor decision making and further money mismanagement. In these circumstances, communication is critical, even though it can be challenging and communicating early is even more critical.
Negotiate With Creditors
Creditors understand that when a business is in trouble, the likelihood of their debts being paid in full dramatically reduces. They also know that if a company goes into liquidation, they may be low down on the pecking order to get paid.
If liquidation and, ultimately, company closure is what you are looking to avoid, it’s worth getting in touch with your creditors to negotiate different payment terms, make smaller payments or ask for a break with the intent to pay. Most creditors will sympathise with your situation; communicating directly with them will benefit your cash flow and theirs.
Surprisingly, even the taxman is open to small amounts of negotiation, but they won’t be if you’ve been avoiding them. Speak with HMRC as soon as you find yourself in a difficult situation. If you get to a position where you cannot pay, your company will be viewed as insolvent, and if you continue to operate, this carries its own set of issues (backlink to previous blog here). Be sure to always communicate as soon as possible with HMRC.
Company Voluntary Agreement
Company Voluntary Agreements (CVA) are a way to extend your loan repayment terms, sometimes up to five years and often allow you to reduce your direct costs making it easier to manage cash flow in a short time.
Gain Funding Via Other Options
Look at the assets that your company owns. Are there any you can liquidate without disrupting the business operations too drastically? You may also have outstanding invoices waiting to be paid; getting these cleared as soon as possible is essential.
Invoice financing or bridging options have gained popularity in recent years; this is where you can have a percentage of your billed invoices factored in and paid upfront; you then repay with a fee once you get paid from your client or consumers. Be cautious with this, as it can become another debt if the invoices are unpaid.
Enter Voluntary Liquidation
This is the last resort, but if the financial stresses become too much and you can no longer push back the pressure from creditors, it may be time to enter a creditor’s voluntary liquidation (CVL). In this case, your company must cease trading, and an insolvency practitioner such as Fortis Business Rescue will be instructed to help raise funds to pay back your creditors. If the company still owns assets that can be liquidated for cash, these will be used to pay the liquidators and pay back creditors; once these are used up, or if there is no means to pay back creditors, the company will be struck off Companies House.
No one wants to face pressure from creditors, but sometimes it is unavoidable and no fault of your own. You can do everything right, manage your business finances appropriately and strategically and have contingency plans. Still, sometimes there isn’t as much cash coming in as there is going out.
In business, we are all in the roles of being on the receiving and giving end of credit, and most of the time, we’re waiting for invoices to be paid so we can pay our own.
We’re here to help!
You must remember that you’re not alone in creditor pressure – Fortis Business Rescue are on hand to help relieve stress and create a strategy to navigate creditors. Get in touch today at 0161 850 0624 to speak with one of our expert advisors.