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Debts are not easy to deal with and, worse still, insolvency can soon follow when you are in a position where you are struggling to pay your creditors. There is no doubt that one of the most stressful times for any businessperson is having to deal with creditors who are chasing unpaid debts. If your business is experiencing a period of financial difficulties, or you are having a problem with cashflow and credit control, (see our other survival guides for help with these) it can feel like you are being permanently badgered for payment. Many directors tell us about sleepless nights and how the time taken dealing with creditors means they spend less time earning money in the business. Ironically the very thing that would help most is often adversely impacted by the need to deal with people chasing for money.
Here are a few suggestions to help you get a clear view of what is happening and how you can start to deal with creditors.
There is no point in unfounded optimism when you have financial issues to deal with. When it comes to debt the situation is not changed by your personal views or opinions. The money is what matters, and frankly, the figures tell the truth. Know your numbers, (again we have a survival guide for this) and make those numbers the basis of your actions as you go forward. Never guess or be unrealistic about income. Cashflow and cash in the bank are your touchstones. Be realistic at all times even if that means you need to admit there is no way to meet your obligations. If it does, call us and we will look at what we can do next.
We call HMRC a quiet creditor because they are very easy to ignore. When you are struggling to pay immediate debts the VAT or Tax bill can seem a long way off. While there is certainly something to be said for prioritising some debts over others (see the next point) HMRC should always be accounted for. They will eventually start to chase, and when they do, they will chase hard. Make sure you are accounting for them in your calculations and never ignore them.
All debts matter and they should all be paid. That said, unless your business is still operating, you can’t pay any of them. Key strategic accounts, along with ensuring HMRC will be paid, are your first priority. It’s important to build relationships with your key suppliers and also to be open and honest with them if you are going to struggle to pay their invoices. You need to keep the cashflow working at all times. It doesn’t mean you can ignore other debts, but you need to be rational and clear about who can be paid and when, as well as what will have the biggest negative impact.
Silence is the worst situation for a creditor to be in. If they don’t hear from you, the chances are that they will move to the next stage faster. Negotiation and honesty will always be the best course of action. We see a lot of directors who mistakenly or accidentally avoided talking to their creditors for too long. If you do it can only make the situation worse.
HMRC for example, will sometimes offer arrangements such as Time to Pay (TTP) agreements that allow businesses to spread their tax payments over a longer period. Be honest about a problem paying as early as possible with HMRC, it can prevent penalties and reduce additional stress and financial strain on your business.
It goes without saying that continued debts will have implications for your business. Court orders (CCJs) and late payments can destroy your credit rating with new and existing suppliers. If you think you are going to struggle to pay your suppliers, make sure you fully understand their terms. What will happen if you miss payments? and most of all. be hyper-aware of when a debt is likely to go ‘legal’.
Controlling your debts and dealing with creditors in a timely and appropriate way is not optional. If you don’t stay on top of things by dealing with creditors openly and transparently, as well as taking a realistic assessment of your situation, your debts could overwhelm you.