Cannot Pay Creditor Invoices? Tips for Dealing with Pressure from Suppliers
Pressure from suppliers can be overwhelming when your company is experiencing financial difficulties. Even if it is only a temporary downturn in company fortunes, the fact that a supplier can apply for a winding up order leaves you exposed to compulsory liquidation and closure.
If suppliers have tried unsuccessfully to recover their monies, and your company has failed to respond or been unable to pay, their decision to take legal action could be disastrous.
A supplier is entitled to make a winding up petition if you have failed to meet their 21-day statutory demand for payment of a debt of £750 or more. If a winding up order is granted, it could quickly lead to liquidation, and closure of your company.
It is imperative to seek the services of a licensed Insolvency Practitioner in these circumstances. Begbies Traynor can provide advice on how to respond to a winding up petition, and the best options for your company.
Threatening phone calls or other intimidating tactics may ensue if your suppliers fail to recover their debts. Here are a few tips for dealing with supplier pressure of this nature:
Keep communication channels open
You may be able to agree extended payment terms with suppliers, providing the time needed to regain control of company finances. If not, and the supplier is intent on taking the matter further, the influence of a professional Insolvency Practitioner might sway the situation in your favour, providing the supplier with more confidence in the company’s ability to pay over the longer term.
Taking out a Company Voluntary Arrangement (CVA) may be an option. This would halt any legal action planned by your creditors, and formalise arrangements to consolidate debts into a single monthly payment. Interest and charges on the monies owed would also be frozen if a CVA was taken out, and as long as the terms are met each month your suppliers would be unable to take any further action.
Failing to respond to supplier communications will only worsen the situation. Supplier pressure is not something that should be ignored, and you may be surprised by their willingness to come to an arrangement.
Creditors’ Voluntary Liquidation
If the pressure from suppliers becomes too much and business is not recoverable, a Creditors’ Voluntary Liquidation might be the best option. This would also reduce your chances of being accused of wrongful or fraudulent trading at a later date, because you have chosen to put creditor interests before those of the company.
On appointment, an Insolvency Practitioner would take control of the company, sell its assets, and close the company in due course.
Asset-based lending options
You may be able to respond to supplier pressure by using the inherent value of business assets. This could involve taking out a loan secured on a piece of machinery or equipment, or selling your ‘book debt’ to a factoring company.
Invoice factoring would provide an injection of cash into the business each month, which could be used to repay some or all of the debts. An added advantage of this financing option is that if your sales turnover increased, the amount provided by the factoring company would increase in line.
Begbies Traynor are available to advise on your best options for dealing with supplier pressure, and reduce your exposure to allegations of wrongful trading. We have numerous offices across the country, and offer a same-day consultation free of charge.