How to Deal With Business Debt
How to Deal With Business Debt
How to Deal With Business Debt
The Department for Business Innovation and Skills (BIS) launched a consultation paper in October with the aim of streamlining debt procedures and making terms and conditions attached to borrowing far clearer. Whilst the areas that BIS are concentrating on relate mainly to personal debt, the fallout from the recession in terms of business debt and insolvencies is still at a high level.
There were 4,080 company liquidations in England & Wales in the second quarter of this year and a further 1,311 companies going into receivership or administration. Add on 34,743 individual insolvencies (including sole trader businesses) of various types and it is clear that the recession will affect how we all do business for some time to come.
Whilst the simplistic answer to avoiding insolvency is not to get into debt, this is easier said than done. Figures from the Forum for Private Business report that 1 in 4 of all business insolvencies are caused by clients paying invoices late. To avoid falling into this trap, it is very important that a business stays on top of its planning and cash flow. Top tips here are:
* Draw up a realistic cash flow forecast on a maximum weekly basis to ensure that payments out will be covered by receipts
* Assume that your clients will pay at the last possible moment and build a further 10 days into the cash flow to allow for payments to clear
* If you need a quick turnover of funds, sign contracts with a 7 day payment period not 1 month
* Review outstanding payments daily and contact clients as soon as a payment is late
* Don't take on debt that is reliant on being covered from one major client. If that client has a problem then so will you
If despite your best efforts you do get into debt then acknowledging this fact as early as possible will help you in the long run. Contact suppliers and finance companies, explain the problem and provide realistic proposals for payment. With short term cash flow problems this may be as simple as "I will pay you next week once my client's cheque has cleared."
When it comes to more serious debt problems, seek help as quickly as possible. General support and advice is available for free from organisations such as your local Business Link and charities such as Business Debt Line. For more specialist advice relating to your circumstances, your accountant is a good place to start as they can often suggest alternatives and help in finance repayment negotiations. Other companies are available but check their fees carefully before committing yourself.
If possible, it is always best to negotiate a settlement with your creditors. However, there may come a time when one of them decides to take legal action to recover the monies owed to them. The Direct Gov website is a good port of call when looking at what might happen and explaining your rights.
The main issues to be aware of are:
* The difference between bailiffs and debt collection companies. Bailiffs are appointed by the court and have legal rights to enter your home and seize goods. Debt collectors are appointed outside the court system and cannot enter your home.
* How to avoid bailiffs. Firstly, if you have notice of a pending court case, contact your creditor and try and negotiate. If the case still goes to court and bailiffs are appointed you can fill in a court form, N245, and offer regular payments.
* Whether bailiffs can enter your home depends on the nature of your debt. When collecting unpaid magistrates court fines or HMRC debt bailiffs have greater powers of entry. Otherwise you don't have to let them in but they can enter through unlocked doors and windows.
* It is always worth offering to negotiate with the bailiff. They can't take essentials
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