By David Hush, Director of Creditor Services, Armstrong Watson

THE restrictions to trading caused by COVID-19 are impacting upon all businesses and many are struggling to maintain sufficient levels of working capital.

In order to survive, their focus is to collect debts as soon as possible, whereas previously businesses may have been more lenient, they cannot afford this luxury in these trying times. Whether you are an individual or limited company you may find yourself at the other end of these demands.

How should you deal with these demands?

The most important thing is to keep lines of communication open. If you can’t afford to pay a creditor because you yourself are waiting for a customer to pay you, then let your creditor know. This can buy you some time, but don’t make a promise that you know you cannot keep, this will only sour relationships.

I have received a letter threatening legal action

This is the next stage that you might expect if you have not paid your creditor within the agreed payment period. This letter should set out the issues, how much you owe, with the evidence to support the claim, such as outstanding invoices and signed delivery notes. The letter must give you a set, reasonable amount of time for you to respond. It will also state what will happen if you do not give them a reply.

It’s very important that you don’t ignore this letter of demand. You must reply within the response time. If you can’t dispute the debt but can’t afford to pay it in full, then you may be able to clear it over time by paying in installments. Again, don’t make promises you can’t keep. However, before you reply you need to take stock and you certainly need to produce a cashflow projection. This will map when you expect income to hit your bank account and when you need to pay associated expenses, and give you the focus to collect your debtors as early as possible.

I have now received a statutory demand

If you have not be able to come to an informal arrangement with your supplier to repay the amount you owe, then the next step they will take is to issue you with a statutory demand.

If you are trading as a limited company, current legislation means that it is not possible for a winding up petition to be brought in reliance upon a statutory demand served between 1st March 2020 and 31st March 2021. This restriction has been extended as the pandemic continues and, importantly, now applies even if Coronavirus has had no impact on the debtor. This means that there is very little point in a creditor serving a statutory demand before 1 April 2021. This buys you some time, but it is important not to ignore the problem. If your projections show that you will not be able to repay your debts by the start of April 2021 then it is vital to ask further questions.

Is your business basically profitable but suffering from short term cashflow problems that can be resolved over time? If this is the case you may wish to consider sourcing some new business funding, such as a bounce back loan or an invoice finance deal. If this isn’t the case then it is vital that you consider whether your business should continue trading and/or whether all or part of your business could be sold in order to bring in funds and preserve jobs. It is important to get the appropriate advice in order to consider all the options available.

If you are a partnership or a sole trader then you have 21 days to either pay the debt or reach some agreement to pay. If this cannot be achieved, your supplier can start bankruptcy proceedings against you if you owe £5,000 or more. If you were to be made bankrupt this would mean that personal assets such as your home could be sold to pay your trade creditors. In order to avoid this, again it is vital to obtain professional advice. Entering into an individual voluntary arrangement, for example, may offer you the chance to continue trading with a view to repaying a portion of your trading debts, in full and final settlement of the whole, over a period of time, usually five years.

In conclusion

In these times of financial uncertainty do not feel that there is no one to turn to. What may seem like an unsolvable problem can be dealt with if you obtain the correct professional help. This could save your business and also the personal assets that you have worked so hard to earn over the years. Call David Hush on 07825 737385 or email for further support and advice for your business.