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Posted: 07 May, 2020

The coronavirus pandemic has rendered entire industries unable to operate effectively, with businesses striving to retain cash simply to survive. Managing this escalating situation can be overwhelming for all of us and it is easy to feel powerless, especially when you are dealing with pressure from creditors.

There are steps you can take to help yourself and your creditors move forward and manage working capital more effectively, however. So how can you deal with severe creditor pressure during this pandemic?

Communicate and negotiate

Your creditors should be able to understand the difficult financial circumstances you are facing, as it is likely they are in the same situation. This is why open and honest communication is vital.

They may be open to receiving payment in instalments if they know that you want to pay but are simply unable due to the ongoing pandemic – even small amounts paid towards the debt are valuable in such challenging financial times.

Consider applying for extra time to pay your tax debts

HMRC is typically one of the largest business creditors, so it can be particularly concerning if you are under pressure to pay tax debts. An instalment scheme already exists that helps eligible businesses repay tax arrears, and this has now been extended.

An HMRC Time to Pay arrangement, or TTP, enables businesses to repay arrears over a longer period of time, potentially up to 12 months, with no penalty. You will need to present a strong case to be accepted, however, providing clear cash flow and proof of long-term business viability, and articulating how you will meet the TTP payments for the full term.

Insolvency measures

If you are worried that your company is insolvent, or is approaching insolvency, you may be able to enter an official insolvency procedure that offers your business a respite from creditor pressure. Potential options include:

  • ·Company administration

Company administration is a common route taken by companies experiencing severe creditor pressure. On entering the process, a moratorium period enables the appointed insolvency practitioner to plot a route out of administration free from the threat of legal action.  

  • ·Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement is a legally binding agreement that allows a company to repay creditors over an extended period of time - typically five years. You make one monthly payment to the creditors included in the arrangement rather than multiple payments to individual creditors, and all interest and charges are frozen.  

Seek additional funding

The new government grant and loan schemes, including CBILS and the Bounce Back Loan Scheme, may help you access vital cash and relieve creditor pressure if you are eligible, as could securing alternative finance such as invoice finance or asset-based funding.

Alternative financiers do not rely so heavily on the typical lending parameters used by banks, such as past business performance and credit rating, so this type of funding is likely not only to be quicker to access, but potentially more flexible over the long-term.

Dealing with creditor pressure can use up valuable resources and often leaves little time to formulate a strategy to escape your current financial situation. Negotiation is a good first step, however, and can play a crucial role in protecting your business cash flow.

Article written by BTG Advisory 

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