When a business is suffering from cashflow problems this will often lead to creditor pressure. This can be difficult for directors because not only is there the worry about debt, these are often people that you have worked with for several years and even consider friends. Not only do you not want the debts building up, but you also do not want to feel that you have let people down. Directors can find themselves in a position where they are worried about business debts, constantly juggling the cashflow and under pressure from their creditors to resolve the outstanding amounts.
One very important but often underestimated result of creditor pressure is that directors spend a lot of time ‘firefighting’. The time taken up by dealing with creditor calls and correspondence can mean your focus is so concentrated on your debts that you end up not dealing with your other business problems. This can all result in a cycle that only increases the problem.
Directors will sometimes find themselves in a position where they start to fear creditor calls because it means a difficult conversation. This is often accompanied by the worry of what the creditor can do legally, what potential actions they can take and the effect all this will have on the business.
let’s take a look at the actions that creditors can legally take against your business, your rights, and your options for dealing with creditor pressure.
The most common tools that creditors use are as follows:
A good credit controller will speak to you regularly. They will also want to ensure that you have received all the relevant paperwork. In actual fact, this clarity results in a positive situation on both sides. A good credit controller will know where you both stand and often be able to resolve things.
It is important to remember that many debt collection agencies are often paid on the basis of a percentage of sums collected. Do not be surprised if they ring more often than you are comfortable with and if correspondence appears more aggressive.
Again, the purchaser will be more aggressive than the original creditor.
This can be in several forms such as county court judgements, statutory demands and winding-up petitions.
Being honest, open and clear about your situation is always the right starting point. We have seen debt recovery and the attending creditor pressure escalate many times simply because of a lack of communication.
Below is a summary of what you can do if you find your business in this position:
Be honest if you are going to struggle to make payment when it falls due, tell them. For instance, if you are waiting for a large payment from a customer, explain that this is the problem and tell them when you hope to resolve it. If things change make sure they know.
If you know your cashflow and then find you are not able to pay the debt when it is due you can look to arrange a payment plan. If you do set up a payment plan it is important that you stick with it otherwise creditors will lose confidence in. Cash is king so knowing your cashflow is the only way to confidently make a payment plan.
Keep them informed and try to arrange a payment plan. Remember they are working on a commission only basis so they may be happy to work with you.
It is normal that you will receive a letter before action, whether this is direct from the customer or from a solicitor. Further details on Country Court Judgements can be found here.
Consider a Company Voluntary Arrangement (CVA) to spread your payments over a longer period. (See our CVA page here)
Unfortunately, creditor pressure will only go away once the outstanding debts are settled. If you cannot settle those debts, then you may well be looking at insolvency.
If you need to talk through your position, call us. We are here to help and offer a free 20 minute initial call to discuss your problems