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Advice for Businesses Coping With Debt

Every business in every sector may have periods where they experience cash flow challenges, loss-making quarters, or difficult trading seasons - but things can become extremely hard to balance when your organisation is coping with debt.

SAS Accounting is not an insolvency practitioner, but we support numerous local companies and understand the complexity and associated stress of handling liabilities.

This guide includes a list of guidelines and potential solutions to run through the range of practical measures you can take.

How to Assess Whether Your Company is in Financial Difficulty

The first thing to note is that most companies have some level of debt.

In many cases, products such as asset finance or invoice factoring are an effective way to manage cash flow and provide much-needed working capital.

However, if you cannot make repayments or notice that your ability to keep pace with debts is slowing down, it's time to evaluate your position.

There are countless reasons you may feel uncomfortable with business debt:

  • Owing money to HMRC or being late with tax or VAT instalments.
  • Finding it harder to pay suppliers on time.
  • Falling into arrears with short-term loans or company credit cards.
  • Experiencing stress when each due date falls around.
  • Being uncertain whether you will have the finances to cover a repayment.

If any of the above applies, the worst action is to try and ignore the issue or assume that sales will pick up - if you don't have quantifiable data and forecasts to support that belief.

Taking action early can be a positive way to restructure debt, relieve pressure, and avoid getting into bigger problems that could lead to insolvency.

What to Do if Your Business is Struggling With Debt

Panicking, taking out more loans, and putting your business into further debt to cope with an existing cash flow crisis will inevitably compound matters and can quickly escalate outside of your control.

Communication is extremely important, as there may be informal processes available to reduce your monthly outgoings, such as:

  • Negotiating with creditors. Lenders are far more likely to be receptive to setting up a payment plan or accepting instalments if you reach out. Simply not paying can sour relationships, so contact your creditors and ask if they can offer support. HMRC will often consider a Time to Pay agreement, and most credit card companies can potentially provide a short-term repayment holiday.
  • Re-forecasting for the months ahead. Few creditors will consider a revised agreement without assurance that the plan is viable. Create accurate forecasts based on actual figures, and you'll be in a much stronger negotiating position.
  • Evaluating unnecessary spending: nobody wants to scale back business operations, but small changes can reduce operating costs. Work through your bookkeeping, income and liability reports to examine opportunities to reduce unnecessary costs or switch to cheaper services.

If you recognise that your current forecasts or business plans require adjustment, it's essential to work on this before making any decisions.

For example, if you have future contracts, it may be that your short-term cash flow concerns are a blip. You will be better able to implement temporary payment plans if you can evidence anticipated income growth.

Conversely, if the situation is longer-term, you'll be able to propose affordable schemes to repay your liabilities without finding that the reduced repayments haven't rectified the matter in a couple of months.

Debt Relief Solutions for UK Companies

Other, more formal arrangements could also be a solution. Your business might choose to take out a cash flow financing product, for example:

  • Merchant asset finance: if you process the bulk of your sales via card payment or a merchant such as PayPal, you might opt to borrow against future sales. The lender will deduct a percentage of sales until the loan (plus interest) is repaid.
  • Invoice factoring: companies with trading terms can borrow against invoices raised and have instant access to revenue without waiting between 30 and 90 days for the customer to pay.
  • Government support: depending on your sector or region, you may be eligible for grants, low-cost loans or advisory support. Search the Business Finance Support directory for more information.

This list is not exhaustive but is intended to give you a brief insight into the variety of options and approaches available.

In some cases, it may be that none of these measures is applicable, or appropriate for your business and a more sustainable option would be to look into a Company Voluntary Arrangement plan (CVA).

It remains vital to consider professional financial advice before taking out any lending product, since the costs and risks of comparable options may be far more suitable.

If you are experiencing any difficulties with business debt, we'd strongly advise you to contact SAS Accounting at your earliest opportunity.

We can walk through the scenario, recommend the best way forward, and help you navigate the broad range of possible options outlined here - ensuring you take action now and can move forward with confidence.