We are all now aware that we are living in challenging and uncertain times. Whilst we all worry about the possible consequences of COVID-19 on our health and wellbeing, the economy is also taking a massive hit.
Businesses are under immense pressure, with the effects of the virus on cash flows being felt worldwide and the current restrictions from our Government meaning that many businesses will be forced to suspend operations or completely change their way of working.
If your customers come under financial difficulty you will need to react to this quickly, in an attempt to lessen the blow upon your own cash flow.
Communicate
Communication truly is key, if you keep in good contact with your customers you will be able to give you warning that they are in financial trouble. This will allow you to restructure any payment arrangement, this will allow you to maintain your own cash flow and your relationship with the customer.
Obtaining Security
If they have significant debt, or if you feel unsure about your customer’s long-term financial position and the likelihood that they will be able to meet their payment obligations, you could look to obtain some additional security.
Personal guarantee and indemnity agreements
There is always the option to enter into a personal guarantee and indemnity agreement with a director of the debtor or parent company. This agreement would make them liable for the debt if the company cannot meet its payment obligations. This is something we can help you to create as it is crucial that the guarantee is properly drafted and some consideration between the parties to make it effective or the document needs to be signed as a deed. Sometimes the guarantor will need to ensure proper independent legal advice has been sought to ensure that the agreement is binding.
Charges
Fixed –
A fixed charge can be secured against a particular asset, most commonly land or property. It is advisable to seek the advice of a solicitor on the mechanics of drafting the charge and registering it against the property at the Land Registry. Mortgage charges already in place may mean that you need to seek lenders consent to the additional charge. A fixed charge will prevent the debtor from disposing of the asset without your consent and will entitle you to claim a proportion of the proceeds of the sale.
Floating –
Floating charges are taken over a shifting pool of assets. This pool is liable to change throughout the course of business. It does mean that the assets can be disposed of without the consent of the charge holder. The floating charge will become a fixed charge upon default and you can then look to sell the assets. The risk here is that there may be no assets left in the pool. Floating charges are not the preferred choice, but can be suitable if a debtor does not own any high-value assets on which a fixed charge could be applied.
Insurance
If your business has suffered loss due to the virus, you should begin reviewing your insurance cover. If you have “business interruption insurance” you will need to act quickly. This is something our team are able to help you do.
