Businesses face a lot of challenges.
One of the biggest?
Managing day-to-day cash flow and ensuring the company stays on top of its finances.
This means ensuring that you continue to keep your business in a profitable position, avoiding insolvency and, in worst-case scenarios, liquidation.
As a leading debt recovery agency, we understand these challenges, and we work with a range of commercial businesses to support robust credit collection procedures and techniques that ensure invoices are paid on time and late payment is kept to a minimum.
In this post, we look at liquidation in more detail, what it is, and how companies can avoid it.
Company liquidation explained
When a company no longer has the funds and ability to continue repaying its debts, and this affects business operations, liquidation can be an avenue that many are faced with – but it doesn’t have to be the only answer.
What is company liquidation? When a company enters liquidation, they are ultimately at the stage of closing down, where the assets it has are sold in order to repay its creditors.
Following this, any debts that can’t be repaid will then be written off, the company will cease to exist, and will be removed as a listing with Companies House.
There are two types of liquidation:
Voluntary liquidation – the company directors have voluntarily decided to enter the company into liquidation.
Compulsory liquidation – the company is ordered (usually by a court) and forced into liquidation.
Company liquidation definition – the closing down of a limited company, where company assets are sold to repay creditors, and the company is officially removed from Companies House.
Avoiding company liquidation
Liquidation may not be the only way if you are looking to keep the business running and still be in a position to repay debts.
For example, you can:
Cut Overheads
Review and scrutinise all costs and overheads, and examine ways these could be streamlined and reduced.
For example, look at utility bills. Could these be reduced if you moved to another supplier/provider? Could you move to smaller office facilities? Rent out desk/unit space, etc.
Focus on your core business, looking to identify inefficient areas of the business that are costing you money rather than generating income.
By analysing your costs, you can save money, providing you with a quick profit boost.
Manage cash flow effectively
Invoices should be sent promptly and include clear payment dates and terms.
Negotiate regular payments and recover debts owed to you efficiently – don’t leave unpaid invoices to build up.
Knowing when you’re getting paid helps you to plan better and set clear expectations.
Check out funding options
Invoice financing is an option where an outstanding invoice is sold to a third party for collection. The business will typically receive 90% of the amount asap and will receive the remaining balance (minus the factoring company’s fee) when the customer settles the invoice in full.
Speak to your creditors
It’s critical that you keep a good working relationship with your creditors and let them know as soon as you face financial problems that may affect debt repayment.
Ask for extended time to pay and even lower monthly repayments where possible.
Note: Your creditors can request a winding-up order or apply to the courts to push you into liquidation for them to get paid, so it’s important to keep a good working relationship with them.
Apply for insolvency
In this instance, you must contact and appoint a licensed insolvency practitioner who helps to arrange and manage the company’s voluntary arrangement.
Insolvency is a formal and legally binding debt repayment agreement that typically lasts between 3 and 5 years, and it must have at least 75% of creditors agreeing to this.
A company voluntary arrangement can give you time to restructure if you need to, sell assets, etc.
Look into company administration
This is a complex, often costly, and more serious process that is mainly suitable for larger businesses.
Company administration focuses on restructuring the company dramatically in order to get it back on track.
All aspects of the business are reviewed with these areas either sold or saved.
Check out our post on the differences between depreciation and amortization when looking further at the valuation of assets.
Work with a professional debt recovery agency
Helping to improve credit control procedures, professional recovery agencies help to collect on invoices and chase outstanding debts to avoid them becoming long overdue and negatively affecting your cash flow.
Business debt recovery solicitors also possess all the necessary tools, including chase letters and techniques, to ensure prompt payment and support credit teams, acting as an outsourced arm for internal departments.
Corporate debt recovery
If your business is facing a financial burden and repaying debts is becoming harder and more complex, look at some of the solutions mentioned above before entering into liquidation.
It is always recommended that you speak to a professional about any financial issues, such as liquidation, and take the best course of action for you.
At Direct Route, we help support credit teams with the collection of outstanding invoices and late payments.
Keeping your cash flow flowing, call us on +44 786 0197 476 to see how we can help you.