If you are struggling to manage your business debts, or are under pressure from your suppliers, HMRC or your bank, then we have set out below some brief advice on how best to deal with these debt issues.
Business debt advice for Company Directors
The worst thing that you can do as a director when facing financial pressure from your suppliers, is to do nothing. The debt will not go away, so the sooner that you apply yourself to finding a solution, the sooner the debt problem will be resolved. The starting point is usually understanding the cause of the current financial problem and the impact that it has on your cash flow. Is it just temporary from a customer paying late, or something more serious such as the loss of a major contract or customer?
One of the key mistakes that directors can make when facing a cash flow problem, is to stop paying PAYE/NI and VAT. That is a serious mistake and one that can lead to further significant problems. PAYE/NI and VAT is not your company’s money – it is tax that you have collected on behalf of the Treasury and belongs to them. HMRC take the none payment of PAYE/NI and VAT very seriously. It could also affect any plans that you may have, should you decide to close your existing company and start again. Depending on the amount of HMRC debt left behind in the old company, HMRC could ask the new company to put up a security bond in the new company. That instantly severely burdens the new company’s cash flow.
As soon as you become aware that your company is about to have some kind of financial difficulty, then you need to look very carefully at the options available. The potential seriousness of the problem will determine what course of action you need to consider. We have briefly summarised below some of the more common debt problems that we see and have commented accordingly:
- Customers slow paying – the obvious starting point is finding out why your customer is not paying on time. Is it just you that they are not paying, or do they have financial difficulties themselves? With our extensive network of contacts, we can usually find out a little more information for you – simply call us on 01159 838 7330 and we’ll see what we can find out for you. This service costs you nothing.
- Customer going into insolvency – not a lot you can do about this. Do you though have retention of title on goods that you’ve supplied? If so, you really need to be onto the Insolvency Practitioner dealing with the case immediately if you want to stand any chance of recovering any goods covered by your ROT clause. We’ll happily deal with this for you, again at no cost to yourselves. If this customer’s failure causes you a more significant cash flow/debt problem, then we can look at helping you refinance your company. We have extremely strong contacts with a number of financial institutions that can move very quickly.
- Accumulation of HMRC liability – this usually arises because of other debt and cash flow problems that you’ve got in your company. Understanding what’s caused those problems is the key to looking for a solution. However, HMRC are far more active now in spotting where companies are not paying on time and will look to recover outstanding liabilities relatively quickly after they become due. If you have any issues at all with HMRC, then just call us on the above number and we’ll look at what we can do for you. You are far more likely to achieve a settlement with HMRC if you are honest and open with them. We have vast experience in dealing with these matters.
- Reduction in funding facilities – there could be any number of reasons for this. As mentioned above, we have extensive contacts with a wide range of alternative funders providing a variety of different funding solutions. Just because your current funder has reduced your credit, doesn’t mean that we can’t find one that will provide you with the funding you need to trade successfully.
Debt Help for Limited Companies
In the event that your current debt problem isn’t covered by the points above, it’s likely that your company’s financial problems are more serious. It maybe that whist the company’s debts are too great to effect a solution within the existing company, the actual business of the company maybe something that is still worth saving. Understanding the difference between a limited company as a legal entity and the business that sits within that entity is extremely important when it comes to looking at restructuring.
If you believe that your company’s debt positon is too great to effect a turnaround within that company, then it may be that we would need to look at closing down the actual company with a view to continuing the business, albeit though a new limited company. There are a number of options available when you get to this stage – the right solution will depend on a number of significant factors, most of which are common to most industries. The key points to consider when looking to effect the start-up of a business out of insolvency can be summarised as follows:
- Are you satisfied that your current customers will trade with your new company?
- Are you satisfied that your existing suppliers will supply the new company?
- Can you raise the finance to buy the assets back from the insolvent company?
- Can you raise the finance to trade the business until the new company’s cash flow kicks in?
- Are you satisfied that the new company will be profitable? What will you be doing differently in the new company to ensure profitability?
- If the sale of the business is deemed a transfer under the TUPE regulations, then all employees of the old company will transfer across automatically.
- You will need to consider section 216 of the Insolvency Act, which deals with the use of a prohibited name – both the actual new company name or a trading name.
- There are then all the usual administrative issues to address – assignment of lease, new VAT number, registering for PAYE/NI, switching utilities and phones over etc. – the list is endless!
Fortunately, we have a wealth of experience in dealing with these matters and can provide detailed, practicable, experienced advice on all of the above issues. Not only can we advise on all of the above, but we will only recommend, what we believe is the most suitable process for you to achieve your plans. There is a wide range of schemes available – we have highlighted these below. If you need to understand more about any of the processes listed below, then just click on the link you want and it will take you to the relevant page. Alternatively call on 01159 838 7330 for a totally confidential and free chat. We will happily pop out to see you, if you need a more detailed discussion.