What to do when your clients cease trading

Construction industry accountancy advice

What to do when your clients cease trading

A client had some extraordinary bad luck recently when two of his customers in the construction industry abruptly ceased trading owing almost £50k to our client.

The situation was worsened by the fact that the goods had been delivered and invoiced but there was little chance of recovering either the goods or the debt.

Suppliers became increasingly aggressive when trying to collect the money they were owed and the whole situation was becoming very stressful on the two owners of the business.

In these situations there is a tendency to bury your head in the sand and wait for the petitions to wind up your company or for a county court summons to plonk on your desk. But if you are serious about making the business work then follow the advice we gave by taking the actions necessary to recover the situation.

How much are you owed?

Firstly find out how much you are owed by your customers. It is a way of getting cash into the business that can help with tight cashflows.
If you have a lender talk to them about the situation. They may not be able to provide any more finance but it is unlikely that they will place the business under any more pressure by restricting the flow of funds.

What do owe creditors?

Find out how much you owe to creditors, reconcile their statements to your accounts payable ledger. This is the starting base. Once you know how much you are owed, how much you owe and the funds available to you then the next stage can be implemented.

Cashflow forecast

This is important. Complete A CASHFLOW forecast. It doesn’t need to be complicated but you must know what your monthly commitments are such as direct debits, standing orders payroll etc and once you have these numbers for the next thirteen weeks you can ascertain what you will need to a) pay them and b) know how much money you will need to satisfy your suppliers.

Now that you have this you can start talking to suppliers with a view to settling their debt in full by trying to arrange time to pay. In my experience most suppliers would rather be paid over a period of time than be faced with a bad debt. Even if they have bad debt insurance any bad debts they claim for will invariably  result in increased premiums for them.

Don’t be aggressive with them but be firm, explain the reason for your current difficulty  and what you are doing to correct it. These are reasonable people and the higher up the organisation you go the more reasonable they become. So talk with your contact first and if that isn’t producing results speak to a director, maybe someone you know.

Similarly, talk to HMRC to see if they will accept a time to pay arrangement. Chances are they will because they do not want to be seen as uncooperative when a business has these unfortunate pieces of bad luck.

A word of warning make sure you can deliver on your promise to suppliers. If you don’t do as promised it is likely that your supplier will lose patience and take the appropriate legal action.

If you have an issue, why not speak to us? Contact us now: [email protected]