Limited company

How to deal with company’s debt

Accountant Chatham - How to deal with company’s debt

Many limited companies will face some difficulties at some point. This does not mean that the company’s future is already decided. There are several options, which can be used to the company’s advantage. But how do you know which is best for you and how to manage them? 

In this article we will answer a few most common questions: 

If your limited company is dealing with debt which it cannot repay, it is important you do not just bury your head in the sand, but address these concerns instead. First and foremost, you need to assess exactly how much debt you owe and to whom. Certainly, some debts will be more urgent than others. For example, priority debts may include: business rates, limited company mortgages, payments to suppliers, limited company loan, limited company corporation tax.

Solutions to company debts

Depending on a number of factors and your company’s current financial situation, there are several solutions you can choose from. If your limited company owes money to creditors, the following options that may be  available to you are :

Company Voluntary Arrangement (CVA)

A company voluntary arrangement (CVA) is a statutory procedure designed to assist in the rescue of a limited company in financial difficulties. Depending on financial abilities some debt can be written off while the rest is paid in agreed monthly instalments. CVA commonly runs between three to five years when the above-mentioned monthly payments are made to the insolvency practitioner who dispenses the money amongst creditors in accordance with the agreement. This solution allows your business to continue to trade and when CVA will come to an end the company will restore management of its own outstanding creditors’ liabilities.

Company administration 

When a company’s debt problems become so severe that they are at risk of legal action by creditors, placing the company in a process known as the Administration will help you to gain some breathing space allowing you to prepare a recovery plan. Insolvency Practitioner is appointed as an Administrator to restructure a business, with the aim of either turning it into a profitable company or effecting a sale of the business to preserve value. An administration is supposed to last no longer than 1 year and although this time limit can be extended by the Court, or through the consent of the company’s creditors, it is important that you take necessary actions in order to save your company from closing via liquidation

Finance and Funding

In some cases, a company’s financial issues may be caused by inconsistent and unreliable cash flow, especially if it operates in an industry where invoice payment lateness is widespread. Accessing an external source of capital, such as invoice financing, may be the best option. Invoice finance gives you access to a portion of the money locked up in outstanding invoices, providing you peace of mind about your cash flow situation. Invoice finance is a flexible and customised form of borrowing that may scale up with your business.

How does invoice financing work?

Invoice financing is where the invoice financing provider buys the company’s unpaid invoices for a fee. The vendor will often quote a percentage, usually up to 90% of the invoice upfront in the form of a loan. This solution gives us the certainty that the cash flow will remain undisturbed. Invoice financing represents a flexible and tailored form of financing that can grow as our business grows.

Closing a limited company with debts

Unfortunately, a company’s financial troubles can occasionally lead to its demise. In these situations, it may be preferable for everyone involved to look into ways to close the firm in a proper and orderly manner. This can be done through a creditors’ voluntary liquidation, which is initiated by the board of directors (CVL). An insolvency practitioner will be recruited to manage the process on the company’s behalf; they will communicate with creditors and ensure that the firm’s obligations are paid in full before the company is dissolved at Companies House. This is a significant move, so the business owner should consult with a competent insolvency practitioner before deciding on a course of action.
Whether you need tax debt advice or debt assistance for limited liability companies, our team is happy to answer any questions you may have. We offer free consultation from Monday to Friday, between 9am – 5pm.