When a company needs emergency business funding, we will look at not just whether we are able to provide the loan but also why the business lending is required and whether there are other issues which should be addressed at the same time, or in fact instead of the business loan. In some situations we are approached as the business debt has reached such a level that the company needs emergency cash to get creditors off their backs and ensure that ongoing supply is available, but is there a better way to deal with this?
An example of business funding
A recent client came to us as the company had been affected by issues out of their control resulting in the company being starved of cash. The directors contacted us for an emergency loan to pay subcontractors, HMRC who were threatening enforcement action and suppliers who had put the company on stop. We reviewed the requirements for the loan with the directors and discussed the options available.
The subcontractors were the most time critical issue. With the call made to us on the Wednesday the contractors were due to be paid on the Friday. They had threatened to simply not turn up if their invoices were not paid on time and from previous experience this threat would be followed through. The work was being completed for a major customer and delays would have meant penalties and a reduced return for the company as well as potentially losing future work. If the work was not completed the customer would not pay, but the work could not be completed until the contractors were paid, which needed the customer to pay….
It was clear that this was not going to be resolved without third party involvement. A review of the company showed it had sufficient assets to secure an emergency loan and with the director giving a personal guarantee the money was in the company’s bank account in time to pay the sub-contractors and therefore the work was completed and the customer has subsequently paid.
We go further than just business funding
Whilst the emergency loan was appropriate for the immediate issue, upon speaking with the directors we were able to find more suitable ways to deal with the remaining creditors. Through their accountants a detailed twelve month cash flow was prepared which showed the company had significant surplus each month which would enable creditors to be repaid over a twelve month period. Reviewing the cash flows with the directors we were also able to highlight areas where the company appeared to be overspending and could cut costs to further assist cash flow.
Although there was a large debt due to HM Revenue and Customs (in excess of £100k) the company had a good compliance record and had not previously entered into any formal arrangements to pay arrears. As such we were able to negotiate a Time to Pay Arrangement with HMRC with the debt being paid in full over a twelve month period.
Debt management plans can spread your creditor payments
The directors had a good relationship with their trade suppliers, even though some had been outstanding for some time. Although the suppliers had been patient, some were now chasing harder for payment and threatening to put the company on stop if terms could not be agreed. With the cash flow forecasts showing that these funds could be paid within twelve months we put the trade creditors in to a Debt Management Plan. We were able to show creditors that the company was in a position to repay and also set out the alternative position to them, which was to force the company into compulsory liquidation, which would have resulted in no dividend being available to unsecured creditors and therefore their debts would be written off in full. The creditors agreed to the Creditor CashPlan.
We also reviewed the debtor position with the directors, unfortunately like so many, the directors were not being vigorous enough with their debt collection and as a result they had a lot of debtor money left to collect in. In a way this if free money to the company, as the work has already been completed all that needed to happen was for it to be collected. With the assistance of Debtcol they considered those debtors who should be passed for legal collection and those that the company simply needed to chase harder. As a result the company was able to free up more cash by collecting in the outstanding debtors and improving their credit control going forward.
By reviewing the position with the directors we were able to find a solution that was a better fit than simply replacing debt with further debt. We were able to spread the amounts the company owed over a longer period of time giving the directors the breathing space they needed and a sensible solution to their issues.