The current economic climate has certainly taken its toll on businesses of all sizes up and down the country. Whilst banks are expecting a gradual recovery, mostly due to the Basel III agreement being passed several months ago, companies on the other hand are struggling to come up with the funds needed to pay off outstanding debts. Additionally, banks are no longer willing to lend money to the majority of people and so businesses are faced with a real problem.

However, there are several options available to companies who are struggling financially that can be easily obtained and are just as simple to manage. Whilst a winding up petition isn’t an admirable prospect, bankruptcy is also not an option.

Cutting costs is an ideal place to start and many areas of operation within a company can be reconstructed in order to save money. Negotiating with suppliers, landlords and customers regarding new deals can all be sought. Failing that, new deals with new clients can definitely make a difference. Staff cuts and redundancies should be the last port of call for failing businesses, however in some cases this will be the only feasible option.

Company Voluntary Arrangement

A CVA will be one of the first things that financial advisors will suggest in these circumstances. A company voluntary arrangement exists between a creditor and a debtor and is a legally binding contract. A debtor is able to come to an agreement with creditors regarding more affordable monthly payments. This type of arrangement can typically wipe out 45% of a company’s debt and is ideal for those businesses who wish to continue trading whilst paying off their debt.

Individual Voluntary Arrangement

An IVA is, again, an agreement that consists between a debtor and a creditor. Although this time the debtor is required to make the creditor an offer, either in the form of a lump sum or as part of on-going monthly payments. This particular agreement lasts for a total of five years and once this period is up, any unpaid debt or interest charges need to be wiped off.

Pre Pack Administration

This process is whereby the directors of an insolvent business start a new company and subsequently buy the assets of the failing business. The new company then trades in the place of the old one without the burden of debts and interest charges. The failing business is liquidated which does not sit well with creditors who are asked for their approval for both a CVA and an IVA.

No matter how many sales, leads or new clients a business gets on board, the burden of debt can be un-ignorable. Talking to a financial advisor the minute a problem arises is ideal.

By Jasmina