As the COVID-19 pandemic continues to unfold, the Government will be forced to continuously re-evaluate the current lockdown measures and evolve or reduce them as necessary. The Government, in doing so, are forced to tip the scales in favour of either public health or the economy. The effects of these measures on businesses is yet to be fully realised but acting quickly to reduce the risks of becoming insolvent due to cash flow shortages is of paramount importance.
Tips in avoiding cash flow shortages
The first consideration you must have, as a business owner, is that the problems you are currently facing are likely the same ones as your clients/customers are also facing. Nevertheless, there are some key changes you can make to ensure you remain on top of things when it comes to ensuring a consistent stream of cash through the business:
- Closely monitor the due dates of all invoices you have issued. It may be the case that you have long relationships with customers and subsequently pay less attention to whether, ordinarily, they pay on time.
- Have open discussions with your customers about your payment terms and whether there is the potential to reduce payment days – perhaps your standard 60 days could be revised to 30 days?
- Reduce the amount of credit that you are actually extending to your customers. Are you able to request that they pay a deposit or pay a portion of the invoice balance in advance?
If you are faced with uncooperative customers or complete radio silence, then you ought to act with haste. In the first instance, you should inform your customer that you will instruct a solicitor to pursue the debt on your behalf unless payment is made, or a repayment plan is agreed. It is important that you instruct a well experienced legal team to ensure that all protocols are adhered to and you have the maximum chance of success.
There are two legal avenues which you can look to proceed with in the event of non-payment. You can look to obtain a County Court Judgment against the customer or, alternatively, you can look to serve a statutory demand. It is certainly not black and white when it comes to making a decision about how to proceed in a debt recovery matter – this is why it is important to have an experienced team to guide you through every step of the process. No two matters are alike and, thus, a completely bespoke approach will be required.
This is ‘exactly what it says on the tin’. It is a formal demand for payment within 21 days which is served upon the customer. This serves as a pre-cursor to either a bankruptcy (in the case of an individual) or a winding-up petition (in the case of companies). As things currently stand, the Court process has been seriously hindered by this current crisis – the majority of hearings at Court for insolvency matters have been delayed (at the time of writing this blog) until 30th June 2020 and only ‘urgent’ cases are being heard.
However, that is not to say that such a demand cannot be served, in fact, it can be the case that the threat alone is enough, without the need to follow through with insolvency proceedings. There is, as there always is, an exception to this – commercial tenants are currently being afforded protection from being served a statutory demand.
Issuing a County Court Claim
The County Courts have also been negatively impacted; hearings are being adjourned, skeleton staff are dealing with the administrative tasks and Judges are hearing urgent cases from the comfort of their homes using telephone or video calls. As a result, processing times are significantly longer than usual. What this means in real terms is that Court action may be less fruitful than simply negotiating settlement pre-legally. If there is a hint of a dispute as to the amount owed, the case could be drawn out for many months – if not longer.
If judgment is successfully obtained after issuing a claim, you will be entitled to proceed with enforcement of the judgment, if it remains unsatisfied. The many enforcement options ought to be discussed with your solicitor because, again, one method of enforcement may prove to be more effective in certain situations than another. The majority of enforcement options remain at the disposal of the claimant but there have been amendments to how they are being carried out. For example, High Court Enforcement Officers (or as they would commonly be referred to, Bailiffs) are still able to take instructions and contact defendants but they obviously are not making in-person attendances.
How Nelsons can help
For further information on avoiding cash flow shortages or any related subjects, please contact Ryan or another member of our team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.