You’ve got that sickening feeling in your stomach every day.

You dread the phone ringing, because you fear it’s more likely to be another payment demand than a new customer.

You know you’re in real financial trouble and your cash flow forecast is telling you that the problem is not going to resolve itself.

Stop, breathe, take stock

It’s a fact of life that businesses will find themselves in financial trouble at times. This is the nature of business. It’s how you react in the difficult times that will define your outcome. After all, financial disaster is often the catalyst for future success.

So, what do you do now? There are various options available to help you move forward. But it’s important during this time to keep a clear head and be aware that there are also businesses ready to profit from your predicament, rather than help – i.e. lenders of short term loans who charge huge interest rates.


1. Face your debts and communicate with your creditors 

Although it’s the part that we all fear – Talk to your creditors and explain your situation. Transparency is always the best way with your creditors. They want their money back so it’s likely that they will work with you to put together a repayment plan that suits you both, in order to get it. It is then essential you stick to your terms and conditions to prevent them potentially issuing a court claim against you.

No one wants to receive a court claim, but if you do receive one, it is vital that you deal with it as soon as possible to avoid a potential long term negative impact on your business. If judgement is issued against you for this claim, the County Court Judgement (CCJ) will show on the business record for 6 years.

If you receive a claim and agree that the money is outstanding, then you should either make a payment immediately or contact your creditor to agree a payment plan. You still need to ensure you acknowledge the claim by returning the document to the court within 14 days. If you don’t do so, then it is possible your creditor can still obtain judgement against you, even if you have paid the debt in full.

If you cannot make a payment or agree a payment plan, you need to obtain professional advice from an Insolvency Practitioner as soon as possible.

If you disagree the money is outstanding or only agree to a different amount, you should arrange payment of the disputed amount to be made. Again, ensure you acknowledge the claim to the court within 14 days and state that you are in dispute.

A court hearing will take place where both sides of the disagreement will be heard alongside evidence. A decision will be made whether you are required to pay all or some of the disputed amount. You must remember that if it is decided that you are required to pay something, a CCJ will be issued against you.

If you make payment within 30 days of being issued a CCJ, it will not appear on public record. You need to notify the court that it has been paid as your creditor may not do so. Failure to pay within 30 days will result in a CCJ appearing on your credit history for 6 years. If payment is made after 30 days, you can apply for the court to make the CCJ as satisfied – but it will not be removed.

If you are unable to pay or agree a payment plan with the creditor after receiving a CCJ, the creditor can apply to the Court to appoint a bailiff to attend your premises to seize goods up to the value of the debt.

Be aware: It is surprisingly common for people to ignore the County Court claim and fail to acknowledge it within the specified time period of 14 days. If this happens, the creditor will obtain judgement by default and you’ll be legally obliged to pay. You’ll have no right of appeal, even if you have a valid reason for defending the claim. It is therefore vital that you respond to the Court Claim immediately.

2. Find an Insolvency Practitioner

If discussions with creditors aren’t going well, find a debt management company that are recognised by a professional body for insolvency purposes, such as The Insolvency Practitioners Association or The DTI Insolvency Service. Their job is to advise you, liaise with creditors and provide you with a legal understanding of your options going forward.

They can help set up an ‘Individual Voluntary Arrangement’ (or Company Voluntary Arrangement for Limited Companies and Limited Liability Partnerships), where you may be able to write off some of your debts and pay the balance over a number of years, provided that 75% of your creditors agree.

The situation won’t be advertised in the press and, usually, you won’t be charged interest.

If these efforts are not successful, the debt management company can help with applying ‘liquidation’. The business will cease to trade and its assets will be sold to provide payment to outstanding creditors.

3. Reassess your budget

Before you start thinking about liquidation though, you need to reassess your budget and your business costs. It’s crucial that repaying business debts is your top priority, otherwise it’s unlikely you’ll have a business to operate in the future. Deal with the debt with the highest interest rate first and then move onto the others.

You’ll need to set a clear financial budget, including, as well, a plan of where you want your company to be in the next 5 years. And then you need to stick to it. Cut business costs where you can, sell unused equipment and chase clients who owe you money.

The management information you need for this kind of financial plan can be sourced from the right accounts package. A good accounts package can prevention and the cure…

Poor cash flow and mismanaged finance is often the reason that businesses get into difficulty. When we’re in the midst of it, we have a tendency to look back and say “I wish I saw that coming”. That’s exactly why we’re always going on about having the right accounts package. Because what we mean by ‘right’ is a software that has the potential to alert you of any problems that are likely to arise, before you find yourself drowning in the middle of it all.

We use Xero, which gives us real-time access to all our numbers, which is the key to being in complete control of your cash flow. The Xero dashboard is a one-stop-shop for all your critical numbers and key performance indicators (KPIs). You can easily see:

  • What your costs are for the month – i.e. your bills
  • What invoices are due for the month and your total income expected
  • Which invoices are overdue
  • An overview of cash in and cash out for each month

Xero, of course, isn’t the only accounts package on offer. There are several factors you might want to consider before you make a choice out of the wide selection on offer today. Take a look at our top three recommendations and our list of pros and cons.

Moving forward, be cautious with business loans and seriously consider whether they are worth the risk. Hasty decisions regarding credit are one of the main causes of business insolvency.

Come and see us. Get some peace of mind by talking your problem through with one of our professional advisers. We’ll guide you through our Profit and Cash Flow improvement service identifying those key figures you need and identify the areas where improvements can be made.

At the end of the session, we guarantee you an action plan that will move you forward.

Want to find out more?

Call us on (01474) 853856 and we will put you in contact with one of our advisers, or send us an enquiry by clicking below.

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