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Cash Flow Problems – Advice for Company Directors in Financial Distress

Poor cash flow can have a highly detrimental impact on a company. What may appear to be a temporary problem that is easily resolved, can quickly result in the company facing a winding up petition from a hostile creditor.  

It is worth remembering that creditors can initiate winding up proceedings against a debtor company that owes £750, which is why seeking professional insolvency advice at an early stage is so important to business recovery.

Acknowledging that your company has a cash problem as soon as possible is crucial, so that early action can be taken using a number of potential options.

Begbies Traynor specialises in company rescue and recovery. We are the UK’s leading professional services consultancy, and can assist if your company is experiencing financial difficulty.

Effective cash flow systems

The first step in dealing with any cash flow issue is to put in place effective management information systems. This makes you aware of your company’s financial situation – an issue that is particularly relevant when insolvency is a threat.

If you carry on trading when you know, or should have known, that your company is insolvent, you could face disqualification as a director for up to 15 years. A simple cash flow forecast lets you know when working capital will be limited during the coming months, allowing you to prepare in advance for any shortfalls.

Back to cash flow basics

Essentially, you need to return to the basics of running your business when you are in financial distress. For example, consider whether there is there sufficient cash to meet your payroll obligations next month, or even this month’s electricity bill.

Essentially, you need to return to the basics of running your business when you are in financial distress. For example, consider whether there is there sufficient cash to meet your payroll obligations next month, or even this month’s electricity bill.

Seeking professional advice

Professional insolvency advice must be obtained when your company has entered insolvency, but you may not realise that this type of guidance will benefit your business at any stage.

Temporary cash flow problems can often be solved with just a few changes to your systems and methods of operation. Changing the way you collect your own debts, for example, can bring in money throughout the month, and enable you to pay your own bills with more ease.

Alternative funding

Alternative funding solutions such as asset-based loans or invoice finance can be of considerable assistance in returning your company to profitability. A cash lump sum, or regular injections of working capital throughout the month, offers greater financial stability and opportunity for longer-term growth.

Business rescue options

When insolvency practitioners (IPs) are called in, their first aim will be business rescue. This can be effected via a number of formal insolvency procedures, including:

  • Company Voluntary Arrangement (CVA)
    This is a formal renegotiation of your existing debts. A licensed IP will analyse your business affairs and enter negotiations with creditors on your behalf. Interest and charges are stopped, and all legal action is stayed as long as you meet the new payment obligations.
    CVAs are a good choice for companies experiencing temporary financial difficulties, but that are expected to make a full recovery. Directors remain in charge of operations once the CVA is underway, and have the opportunity to trade their way out of difficulty.

  • Time to Pay arrangement (TTP)
    HMRC may be open to negotiations for a Time to Pay arrangement if you have arrears of tax and/or National Insurance. These arrangements generally offer 3-6 months’ extra time to pay, and also give you the chance to consider longer-term options that would sustain your business, such as alternative finance.
    Time to Pay arrangements are only available for businesses that HMRC consider to be experiencing temporary cash flow difficulties, however. Involving professional assistance during negotiations can help to reassure HMRC that the repayments proposed are affordable for the company.

Treating cash flow problems as a crisis, however insignificant they may seem, can protect you from further issues and a potential decline into insolvency.

For more detailed cash flow advice tailored to your company, call one of our licensed insolvency practitioners. Begbies Traynor operates from 44 offices around the country, and can offer a free initial same-day consultation.

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Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland

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