Dealing with downturns in business can be extremely challenging. From customers going out of business to sudden, unexpected changes in your industry, a variety of things may catch you off guard as a company director and put your business in a tough position.
When things get really tough, simple tasks such as paying suppliers, contractors and other key creditors on time can become difficult or impossible for your business.
Although this situation can seem hopeless, the reality is that a range of options are available for your business. Below, Business Adviser and Corporate Consultant Neil Debenham explains your best options if your business is facing cash flow issues that affect its ability to pay its bills.
Consider emergency financing options
If your business has a long trading history or assets with a significant value, you may be able to use emergency financing to access the cash you need to pay your bills.
Many businesses are fundamentally viable but suffer from cash flow issues because of sudden changes in the market or unexpected expenses. For example, you might have a business that’s usually profitable, but face cash flow issues because of a sudden setback or one-off cost.
Several different forms of emergency financing can help your business. One option to consider is asset financing, which involves using your company’s balance sheet assets to borrow money and pay short-term liabilities.
If your business owns real estate, equipment, vehicles or even things like inventory, you may be able to use this to receive financing. In exchange, the lender will take a security interest in your company’s assets until the loan is repaid.
Emergency financing can be expensive, but in crisis situations, it’s often the best way to protect your business from legal action.
Depending on your company’s financial status, you may be able to use other forms of financing to pay your bills in the short term. These may include merchant cash advances, credit cards or even borrowing money via a conventional bank loan.
If possible, try to negotiate with creditors
While some bills are unavoidable, many creditors are surprisingly understanding if you’re open and honest with them as early as possible.
If your business has run into tough times, reaching out to creditors and explaining the situation can, in some cases, be the best solution. If you have a positive relationship with your creditors, they may be willing to renegotiate or delay payments based on your current situation.
Some creditors may be willing to work out an installment-based payment plan, allowing you to gradually pay your bills over the course of several months as you focus on staging a financial recovery for your business.
Legally, this is known as an informal agreement. It’s often the cheapest, least stressful option if your business is facing financial difficulties but has a viable future.
If your company is under pressure, seek expert advice
Although it’s normal to occasionally experience financial difficulties, if your company falls behind on its bills, it may run into legal pressure from its creditors.
For example, if a creditor is owed a significant amount of money by your business and has yet to receive payment, they may send a statutory demand — a legal demand letter specifying that your business must pay or face legal action.
It’s important to take legal demands seriously, as a statutory demand is often the first step for a creditor in the process of winding up, or liquidating, your business.
If your company is under legal pressure because it can’t pay its bills, it’s important to seek the help of an expert. You do have options, including challenging the debt or seeking legal help if your company is financially insolvent.
In some cases, you may be able to negotiate with your creditors through a company voluntary arrangement, or CVA. In others, your business might be able to enter into administration as a way to protect itself from legal action filed by unpaid creditors.
Whichever option you choose, it’s important to act fast if your business can’t pay its bills and is under legal pressure. Delaying, or continuing to trade, could result in you facing charges if you are a director of the company.
Act quickly to protect your business
It’s important to act quickly if your business is facing financial difficulties, even if it currently isn’t under pressure from its creditors concludes Neil Debenham.
Neil Debenham www.neildebenham.com The earlier you act when you run into financial difficulties, the wider the range of options that are available to your business. Take action as soon as you notice financial issues and you’ll put your business in the strongest possible position for a long-term recovery.