How to approach creditors when you cannot pay

Top tips for company directors when negotiating with creditors

Negotiating with a creditor is crucial, and communicating a reasonable payment plan is key to gaining their support. It’s important to grasp their perspective and recognise the daily impact of non-payment on them.

In the end, they could seek to wind up your company, especially if the creditor is HMRC – and this process tends to be swift. HMRC can take enforcement action without a court order, posing significant risks for your company.

Keeping this in mind, here are some tips to enhance your odds in negotiations with all creditors: 

Know your figures

You must determine the amount you can realistically pay and be ready to clarify why your company is currently facing financial challenges. This explanation is most convincing when backed by a solid grasp of your financial figures and an understanding of the root causes of the problem.

Seeking professional advice before engaging with a creditor is wise. An insolvency practitioner (IP) can verify that your business can sustain the suggested repayment plan, reassuring your creditor that you are receiving sound advice.

Support your negotiations by presenting your accounts, detailing how you arrived at the proposed amount and demonstrating the affordability of the repayments.

Be prepared to develop a back-up plan

Your creditor may likely reject the first proposal, asking for either a shorter repayment period or a higher monthly sum. Hence, having a backup plan is crucial.

Consulting with an insolvency practitioner (IP) can help determine if you qualify for a formal insolvency procedure, like a Company Voluntary Arrangement (CVA). If you meet the criteria and your IP deems it suitable, this process may enable you to navigate financial challenges while maintaining complete control of the company.

Will you undertake negotiations yourself?

If you opt not to seek assistance from an insolvency expert, thorough preparation before negotiations is essential. It’s advisable to jot down the key points of your proposal to ensure nothing is overlooked and anticipate questions from your creditor.

Dealing with HMRC negotiations can be notably challenging. As previously noted, they can take swift action, but if you’ve been prompt in responding to their communications in the past, they might be open to considering an extension for payment.

Keep communications open 

Staying available to communicate with your creditors and promptly addressing any queries or requests can have a positive impact on negotiations right from the start. This demonstrates your commitment to resolving the outstanding amount and helps build a more trusting business relationship.

Keep in mind that despite facing difficulties in repayment, creditors are usually reluctant to lose you as a customer. Therefore, ensure they understand your enduring commitment and your intention to regain financial stability at the earliest opportunity.

Read More:

• What to do when your company is struggling to turn a profit
• Company Legislation
• Actions against directors: assignment of claims to a third party
• My insolvent business has ceased trading
• Understanding the new standalone moratorium for insolvent companies

Enlist professional help

Insolvency practitioners provide valuable advice at any stage of proceedings, playing a key role in steering companies away from financial troubles. If you anticipate your situation worsening, the guidance of an insolvency practitioner can be highly impactful.

A licensed IP possesses connections within the finance industry, aiding in securing urgent financing and instilling confidence in your repayment capability.

Vanguard Insolvency, with offices across the country, can aid in negotiations with creditors. We provide independent advice and a professional perspective. Reach out to one of our team members for a free same-day appointment to discuss your needs.