Trying to make ends meet when your business is struggling financially and facing cash-flow problems 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.


Is your Company Under Pressure From its Creditors?

Creditor pressure is the situation in which a business is facing demands from its creditors to pay its debts. This can happen when a business is struggling financially and is unable to meet its financial obligations.

Creditors can apply pressure to businesses in a number of ways, including:

  • Sending threatening letters.
  • Taking legal action, such as issuing a winding-up petition or a statutory demand.
  • Seizing assets, such as inventory or equipment.
  • Stopping the supply of goods or services.

Creditor pressure can be a very stressful experience for business owners. It can be difficult to know how to deal with creditors, and it can be difficult to make the necessary changes to improve the business’s financial situation.

However, it is important to remember that creditor pressure does not mean that your business is doomed. There are a number of things that you can do to improve your business’s financial situation.

Understanding the Rights Your Company’s Creditors Have

As a company director, it’s crucial to understand the rights of your company’s creditors, especially under circumstances where financial challenges arise. Creditors are entitled to seek repayment of debts owed to them, and their rights are protected by law. These rights can vary depending on the type of creditor (secured, preferential, or unsecured) but generally include:

  • Secured Creditors: These creditors have a charge over a company’s asset or assets, which can be used to recover the debt owed. If a company fails to pay, secured creditors have the right to take possession of the secured asset and sell it to recover the debt.
  • Preferential Creditors: This category includes employees owed wages and certain pension contributions. They are given preference over unsecured creditors but rank below secured creditors in the repayment hierarchy.
  • Unsecured Creditors: This group includes suppliers, HM Revenue & Customs (for unpaid taxes), and customers (for deposits or undelivered services). Unsecured creditors can make claims against the company, but they are last in line for repayment after secured and preferential creditors.

Creditors have the right to take legal action to recover debts, which can include petitioning for the company’s liquidation if the debt exceeds a set threshold and remains unpaid. They can also apply for a County Court Judgement (CCJ) against the company, which can affect the company’s ability to obtain credit.

What to do if Your Company is Facing Creditor Pressure?

If your company is facing creditor pressure, there are a few things you can do:

  1. Communicate with your creditors. Don’t ignore them. The worst thing you can do is bury your head in the sand. Be honest and upfront about your financial situation, and work with them to develop a payment plan.
  2. Consider a Time To Pay (TTP) arrangement. This allows you to spread out your payments over a longer period of time. You can apply for a TTP arrangement with HMRC or other creditors.
  3. Negotiate with your creditors. You may be able to negotiate lower interest rates or late payment fees. You may also be able to negotiate a payment plan that is more affordable for your business.
  4. Seek professional advice. An accountant or insolvency practitioner can help you to understand your options and develop a plan to deal with your creditor pressure.

What Options are Available to Relieve Creditor Pressure?

If your company is unable to meet its financial obligations to creditors, it is critical to take immediate and transparent action. Open communication with creditors is essential; ignoring them can worsen the situation and may lead to legal action against your company.

First, review your financial statements and cash flow projections to gain a comprehensive understanding of your financial situation. This will provide a foundation for discussions.

Next, contact your creditors to inform them of your current financial difficulties. Being upfront can build goodwill and facilitate a more favourable outcome for both parties. When feasible, propose a realistic payment plan or request extended terms. Providing clear reasons and evidence for the delay may assist in negotiating more lenient terms.

You may also want to prioritize creditors based on the severity of the consequences of non-payment. For example, failing to pay taxes can result in legal repercussions, while delaying payment to suppliers may disrupt future deliveries.

Retaining an insolvency practitioner such as ourselves can provide valuable insights into debt restructuring and navigate the legal complexities of dealing with creditors. They can help negotiate new terms or alternative arrangements that are legally binding.

Remember that documentation is essential. Keep records of all correspondence with creditors, including any agreed-upon changes to payment terms, as they may be required for legal reasons later.

In some cases, formal procedures such as entering into a company voluntary arrangement (CVA) may be appropriate to bind creditors to a structured payment plan.

Entering into a CVA allows you to keep trading, and as long as you keep up with the repayments. It will protect you from further creditor pressure or harassment. You cannot propose one of those yourselves, however: they must be arranged by a licensed insolvency practitioner and voted upon by creditors before passing.

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 bailiffs. Bailiffs are court-appointed representatives with the 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 creditors themselves, it’s worth pointing out. They will simply be more persistent because they make their money via a percentage of money recouped.