Creditor pressure can be unbearably stressful.
Trying to make ends meet when your business is struggling financially and maintaining a healthy level of cash-flow are common challenges faced by directors. Limited access to funding can further compound your problems, making it increasingly difficult to run a business effectively.
On top of these problems, creditor pressure can really up the ante and make a business owner feel like the walls are closing in. If your business is unable to make payments to its creditors, the reality is that the pressure will intensify until the payments are made.
This article will explain your options.
What is a Creditor?
A business creditor is someone who has supplied goods, services or a loan to you, whom you have not yet paid.
The opposite of a creditor is a debtor, meaning obviously the individual or company with responsibility for the debt.
What Happens When You Can’t Pay Business Creditors?
Creditors have a number of tools at their disposal to recover the money they are owed. This ranges from charging interest on late payments or even employing a debt collector, to pursuing legal action such as statutory demands and County Court Judgements (CCJs).
The consequences of legal action can be serious and ultimately the company’s liquidation a real possibility.
Of course all creditors are different. HMRC is the UK’s biggest creditor and perhaps the one to be most wary of. They will wind up a company simply to make an example. In the case of most other creditors, they must consider it financially in their interests to do so.
Ignoring Creditor Pressure is not the Answer
Pressure from creditors can be extremely hard to deal with. You can avoid emails and phone calls from your suppliers, but this is not a problem that will simply go away. A difficult situation can be made worse if you’re dealing with a particularly aggressive creditor like the tax man. HMRC has a number of serious methods of recovering lost payments from your company.
In all cases, maintain clear lines of communication with those you owe money to. Show them you’re not ignoring the problem but doing your best to make ends meet.
And if you feel things are reaching a critical point, you must seek professional help to give yourself the best chance to come through the situation intact.
This is one pressure which can never be beaten by ignoring it. You have to look it in the eye, find the best solution, and take action decisively.
What are the Options to Stop the Creditor Pressure?
If you choose to deal with the situation head on, there are a number of options available to you to cease creditor pressure.
Your options depend on the nature of your cash flow problem and the amount of debt your company owes. However, you must face up to the problem quickly. The earlier you act, the sooner you’ll be able to stop the creditor pressure.
(1) Negotiate with Creditors
Many small businesses experience short-term cashflow problems that are resolved when a substantial payment is received. If you’re awaiting a payment of this kind, you could try to resolve the issue by explaining your predicament to the creditor. Late payments are a huge problem for UK small businesses, and most creditors will have some sympathy in this situation. Perhaps you could reach an agreement to pay the amount you owe over a longer period of time?
(2) Find Alternative Funding Options
If your attempts to negotiate have been unsuccessful, there may be alternative funding options you can use to pay your debts. In some cases, the company might have tangible assets on the balance sheets, or due invoices, that can be used to generate the money you need. Invoice financing has become an increasingly popular method of improving cash-flow for SMEs.
Another option could be to refinance the assets you have. Typically, this kind of loan is used for urgent borrowing requirements such as settling unpaid tax liabilities. The point is that there are a number of finance options available that could provide the essential assistance you need.
(3) Pay Arrears in Instalments via a Company Voluntary Arrangement (CVA)
If the company is still viable, you could consider entering into a company voluntary arrangement (CVA). A CVA is a formal repayment plan that once agreed with your creditors, will give you more time (up to five years) to pay. Entering into a CVA allows you to keep trading, and as long as you keep up with the repayments, the CVA will protect you from further creditor pressure or harassment.
(4) Choose Voluntary Liquidation (CVL)
If you think the extent of your cashflow problems are such that the business is simply not viable anymore, you may consider a creditors’ voluntary liquidation (CVL). In this case, the business will cease trading and an insolvency practitioner will be appointed to raise money to repay your creditors by selling off company assets. Once the company’s assets have been sold, it will be struck off the Companies Register and will cease to exist.
Can you Ignore a Creditor’s Debt Collectors?
Debt collectors, even those sent by HMRC, cannot enter your home or business premises without being invited, unless they have a court order.
It’s important to realise that doorstep collectors are simply another form of pressure, and they are not the same as baliffs. Baliffs are court appointed representatives with a legal power to reclaim goods.
Always ask to see all necessary paperwork, and never invite them in or give them any reason to enter your premises.
Debt Collection agencies have no more power than the creditor themselves, it’s worth pointing out. They will simply be more persistent because they make their money via a percentage of monies recouped.
Can Creditors call you at work?
Both corporate and personal creditors can call you at work, although they’re not allowed to reveal themselves to your employees or co workers. They must talk to only you about your situation, unless you’ve given someone else formal permission.
They can you as often as they wish, as long as this doesn’t slide into harassment. They may also not call you at ‘unreasonable hours’, although given people’s differing work hours this is hard to accurately quantify. If they’re calling you at times you consider unreasonable, give the creditor formal notice of this and ask that they respect it.
Do You Need Help with Creditor Pressure?
If you’re experiencing constant creditor pressure as a result of cash-flow issues, we can help you assess your situation and explore the potential solutions available. It is even possible to stop a winding up petition with the right defence. We can negotiate with HMRC on your behalf and look more closely at alternative funding options. For a free, no-obligation consultation, please contact us today.