Options When Faced with Business Cash Flow Difficulties
If your business is suffering cash flow difficulties there are a number of options that you can consider depending on the type of business you operate in and the reasons for the difficulties.
If the underlying business is sound and you have been able to deal with the issues that led to the current cash flow difficulties then one of the following options is likely to be suitable for your business.
1. Propose a Company Voluntary Arrangement (CVA)
If your business has debts due to a large number of creditors or if the amounts owed are considerable then you should consider proposing a Company Voluntary Arrangement or CVA. A CVA is a formal insolvency process where your business pays a monthly payment based on what its cash flow forecasts say it can afford over a period of up to 5 years.
As CVA payments are based on cash flow forecasts rather than on the debt owed, most CVAs result in the business paying less than 50% of the total debt back. The balance of any debt is then written off after 5 years. As a CVA allows the business to continue in its current legal form, CVAs also have the benefit of allowing ongoing contracts and accreditations to remain in place.
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2. Agree an Informal Payment Plan
If your business cash flow difficulties have led to large arrears with just a small number of creditors then it may be possible to agree an informal payment plan with them. This is particularly the case where the bulk of the debt is to HMRC who will may be willing to agree to a Time to Pay Arrangement.
As Licensed Insolvency Practitioners, we can present a plan to your creditors which demonstrates the negative effects of failure of the Company should they chose not to accept the proposals. This plan will be based on your cash flow forecasts and be supported by financial comparisons between the payment plan and the return to creditors should they force the Company into Liquidation.
By using us to put the plan forward on your behalf, you significantly increase the chances that creditors will agree to the plan. We are also more likely to be able to agree the plan over a longer period resulting in you paying less per month.
3. Seek Additional Finance
This could be through asset finance or through invoice finance depending on your business asset base and the nature of your industry. Both forms of finance are an excellent way to relieve cash flow difficulties as funds are made available up front as a lump sum.
It can be difficult to raise additional finance if your business has been suffering cash flow difficulties as its credit rating is likely to have dropped considerably. Also your business may not to have sufficient fixed assets to enable it to secure sufficient funding. In these circumstances, it is better to look at factoring and invoice financing as your business debtor book will probably be its largest asset.
With either type of funding, it is important to understand your options and to ensure that you get specialist advice before making a finance application. We provide help and advice on securing a variety of financial solutions, particularly if your Company has suffered a reduction in its credit rating as a result of its cash flow difficulties.
4. Restructure your Business
If your business cannot raise new funding or enter into a successful payment plan then you could look to restructure your Company through a formal insolvency procedure such as Pre Pack, Administration or even Liquidation. This removes the difficulties of dealing with HMRC and also enables you to deal with any other debts the Company has built up. This is often a cheaper alternative which also allows you to move on with your future business more quickly without continuing with past financial difficulties.
If your underlying business has the potential to be successful but is being held back by ongoing contractual obligations such as long and expensive leases, excessive staff costs or commitments to customers or suppliers that are no longer commercially viable then restructuring can also release it from these.
When you get in touch with us, you will speak directly to a licensed Insolvency Practitioner from the outset. We will take the time to understand your Company’s financial position, what your future intentions are for the business and ultimately what outcome you are hoping for.
Whichever route you choose, we will help you put appropriate plans in place and will guide you throughout the process.
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