If your business is facing debts and bills it cannot pay, you may feel like there’s no light at the end of the tunnel. But all is not lost: here’s what you should do to deal with commercial debt recovery.
Rework your budget and reduce your costs
By understanding what you’re earning and what you’re spending, you can identify the precise shortfall and start taking steps to address the problem. One obvious move is to seek out new customers (or additional business from existing customers) to improve the income side of the equation. At the same time, you can aim to trim your costs; this could mean taking difficult decisions like losing people, selling excess equipment or downsizing to smaller premises. Equally, your suppliers may be willing to extend your payment deadlines in order to improve your cash flow.
Create a repayment plan that you can meet
Not all debt is equal: with more flexible borrowing methods like credit cards, the interest can be so high that you never repay much of the capital. These are the loans you should focus on first. Once you know you can meet your minimum monthly payments, you should then focus any available cash on reducing your highest interest loans first. Once that loan has been paid off, you can move onto the loan with the second highest rate, and so on.
Talk to your lenders and creditors
By keeping in regular contact with your creditors, you can reassure them that you’re taking the situation seriously and are keen to address your debts. You may also be able to reduce your repayments by consolidating several short-term loans into one long-term agreement. Alternatively, you might be able to reduce the interest you pay by switching from one credit card to another; you could even find that your bank is willing to lower your rate to help you out, though this will depend on whether you have been a reliable customer in the past.
In some cases, your company could qualify for a hardship plan, which combines lower interest rates with an extended loan term or even an interest holiday. Creditors will generally require a hardship letter that explains your financial situation and proves that you need help in order to meet your obligations.
If all else fails, consider a Company Voluntary Arrangement
A Company Voluntary Arrangement (CVA) is a procedure that can be implemented when a business cannot meet its financial obligations but potentially has a viable future. It gives the company breathing space from legal action whilst it attempts to restructure its finances, which usually involves proposing a payment plan under which creditors receive some proportion of what they are owed.
Creditors are under no obligation to support a CVA, but in practice they often do, simply because with a CVA they are likely to receive something whereas if the business is liquidated unsecured creditors could be given nothing.
The big advantage of a CVA is that your business can continue to trade, with the existing directors remaining in control. Your debts will be reduced, which could put the business back in the black, and any underlying structural issues can be resolved by the directors along with an experienced turnaround practitioner. You can even carry forward any losses for tax purposes and seek new sources of funding to get the company back on its feet.
Don’t forget to talk to Cashsolv
Cashsolv are the specialists in CVAs and small business finance. If your company is in trouble, we’ll go the extra mile to keep you in business and get your back on the right track. To discover what we can do for you, please click here.