Ways to help cash flow in difficult economic times One of the main reasons for business failure during recession is late or non payment of debts. If you are struggling to persuade your customers to pay, there are a number of actions you can take to get them to part with their cash.
A major reason for company failure during these difficult trading times is late or non payment of debts. If your customers pay very late or not at all, this may put your business in an extremely difficult financial position. In turn, you may need to delay payment to your suppliers and so the problem moves on through the economy.
The following are some tips to help persuade your customers to pay their debts.
A Letter Before Action is really a written warning to your debtor of the action you are prepared to take if your debt is not paid. The letter will normally imply that court proceedings will be issued and costs and interest (see below) added to the debt. Of course, involving a solicitor will involve a cost. However, it is a fact of life that debtors take communication from a solicitor more seriously where they may ignore a threatening letter written simply on your company's letter head.
It is largely unknown that in 1998, the UK government introduced legislation to give businesses a statutory right to claim interest from other businesses for the late payment of commercial debt. This is known as the Late Payment of Commercial Debts (interest) Act. If you do not already have provisions for adding interest in your standard payment terms, you can add such under this legislation. Your calculation of interest should be included in any letter before action that you send to debtors.
Depending on the size of the debt this may be cost effective. If you do decide to instruct recovery experts, the advice is always do this sooner rather than later. It is likely that the firm you are pursuing for payment also owes money elsewhere. However, be mindful that if a County Court Judgement is agreed in your favour, the debtor may choose to ignore it and continue to avoid payment.
The threat of a winding up order has become much more prevalent as a debt collection tool in the past 12-18 months. Any individual or business owed more than GBP750 can petition for the winding up of a company. This threat has significant teeth.
If the petition is granted by the court, this will be advertised in the London Gazette. The advertisement will be picked up by the businesses bank. As a result the bank is likely to freeze the company bank accounts until the petition is either withdrawn or the winding up procedure ordered by the court. Clearly to have a bank account frozen is a massive inconvenience for any business. With this threat, a debtor is more likely to repay what they owe than if they were to simply face a county court judgement.
Given the current difficult trading conditions, it is extremely likely that you will face the late or non payment of invoices. If your business is owed money, it is of course preferable to come to an amicable informal agreement for this to be repaid. However, where this is not possible, it is important that you take action to collect debts and as far as possible, protect your own business's financial position. The best advice is to act swiftly and do not be afraid to use the threat of court action where this is necessary.
What happens to the directors if a company is wound up?
Once a company is being wound up a Liquidator will be appointed. The liquidator will undertake an investigation into the conduct of the directors to see whether they have knowingly allowed the business to trade while insolvent thus making the creditor's position worse. If this is the case, a director may face being disqualified and held personally liable for the company's debts. As a Director we look at the options you have.
What will having a County Court Judgement do to my company
If a county court judgement remains unpaid, this could lead to more serious action being taken against the business. We look at the impact and what you can do.
Company debt restructure to improve cash flow
Ensuring that enough cash is available to maintain their business must be a priority for companies. Those that do it well will survive. Those that do not are likely to fall. As such identifying problems and implement solutions which may require a radical restructuring of debt must be a priority. We discuss some of the solutions available.
