Understanding ‘Trading Out’ when struggling with company cash flow

Dealing with debt by engaging in trade is a usual method to tackle the issue of insufficient cash flow, but it’s only appropriate in specific situations. If your company faces challenges due to negative cash flow, and it’s not viewed as a lasting problem, thinking about trading out might be a good idea. 

There are two primary ways to go about it if you believe trading out could benefit your company – having informal talks with creditors to cut down on repayments or extend repayment periods, and taking a more formal approach that includes seeking assistance from a specialised turnaround practitioner. 

In either situation, it’s crucial to bear in mind that you’ll require a thorough plan to effectively trade out of the current challenges, along with a system to regularly monitor progress – preferably daily.

When cash flow has been interrupted for any reason, it’s simple for the resulting debt to escalate. Business owners and directors who are confident in the stability of their core business often prefer trading out. They just need some time to get back on solid financial ground.

Now, let’s examine each of these approaches one by one.


Informal negotiations with creditors

If you’ve had a lengthy and successful business association with your suppliers, they’ll likely grasp that your issues are probably temporary. It’s common for businesses to face financial challenges at some point.

For many businesses, these problems occur seasonally and repeatedly. The crucial thing is to stop the company from sliding into insolvency when all it might need is a quick cash boost or a small adjustment in how the business operates.

Before starting discussions with your creditors, you should plan out the company’s daily cash flow requirements for the upcoming weeks and months. Come up with a repayment amount that is not only fair for the creditor but also manageable for the business. In simpler terms, be cautious and lean towards safety when deciding.


So what should this plan include?

  • Keep track of when your own debtors are likely to settle their bills. To improve the chances of timely payments, get in touch with each one after delivering their order to ensure everything is fine. Follow up again just before the payment is due.
  • Develop a daily cash flow estimate, adjusting it as money flows in and out of the business to make sure you’re staying on course.
  • Request credit terms that are longer than you initially think you’ll require. For instance, consider starting with 60-90 days terms instead of 30-60.
  • Explain in writing to your creditors the financial challenges you’re facing. Outline the reasons for your current situation and describe your plan for addressing the issue.

It’s a good idea to maintain a written record of every interaction with creditors. Include the details of any agreements reached during these discussions. This way, you can refer to it if a creditor raises questions about repayments later on.

Generally, suppliers won’t want to lose a valuable customer. If they think the business can bounce back, they’re more likely to offer assistance.

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Bringing in professional help before attempting to trade out

Getting advice from a professional insolvency expert can really help when working to trade out debt successfully. Even though you still need a detailed plan, having a business turnaround specialist involved boosts confidence with your creditors and shows you’re serious about repaying debts. 

If your company has plenty of assets, the expert might suggest putting in some cash through asset-based lending to support your business during the process. Depending on your company’s setup, other options like invoice factoring, crowdfunding, or peer-to-peer lending could also be suitable.

Act swiftly if you start facing cash flow issues, so you don’t end up dealing with insolvency suddenly. 

Vanguard Insolvency provides free same-day consultations and can give you the professional advice you need to make sure trading out is the best solution. We have offices across the country – just give one of our professional turnaround specialists a call to set up an appointment.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.