By David Hush, director of creditor services, Armstrong Watson LLP

COVID-19 trade restrictions and the pressure of increasing inflation, are leading many businesses to collect debts as soon as possible and chasing customers much more quickly for payment. As an individual or a limited company, what should you do if you find yourself at the end of these demands?

Firstly, and crucially, keep lines of communication open. If you cannot afford to pay a creditor because you yourself are waiting for a customer to pay you, then let your creditor know, but don’t make promises you know you can’t keep.

If you have not paid your creditor within the agreed time, they may issue you with a letter threatening legal action and setting out the issues. The letter must give you a set, reasonable amount of time for you to respond and what will happen if you do not give them a reply.

It is essential you don’t ignore this letter of demand. 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 instalments, but don’t make promises you can’t keep. Before replying, produce a cashflow projection, mapping when you expect income to hit your bank account and when you need to pay associated expenses.

If you are unable to come to an informal repayment arrangement with your supplier, the next step they will take is to issue you with a statutory demand. If you are a limited company, consider is your business profitable but suffering from short-term cashflow problems that can be resolved?

If this is the case, you may look at sourcing new business funding, however, if not the case, it is vital to consider whether your business should continue trading, or perhaps explore selling part of your business to bring funds into the company/preserve jobs, but it is essential to get advice and explore all the options available.

Partnerships or sole traders, have 21 days to either pay the debt or reach some agreement to pay. If this can’t be achieved, your supplier can start bankruptcy proceedings against you if you owe £5,000 or more. If you were made bankrupt, personal assets such as your home could be sold to pay your trade creditors. 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 these times of financial uncertainty do not feel 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.

For help, phone David Hush on 0113 2211 391 or email