I Can’t Pay Suppliers – What Should I Do?

What Happens if You Can’t Afford to Pay Your Suppliers?If you’re like most small business owners, you probably need to purchase supplies or raw materials from other businesses on a regular basis. But what happens if you can’t pay your suppliers? Unfortunately, this is a situation that many business owners face at some point. There are a few different options available if you find yourself in this predicament.

First, you could try to negotiate with your supplier. This may involve extending your payment terms, for example. Or, you could look into alternative sources of financing, such as business loans or lines of credit. Finally, if all else fails, you may need to consider bankruptcy.

Although this is obviously not a ideal solution, it may be the only way to get out from under crushing debt. Whatever route you choose, it’s important to take action quickly if you can’t pay your suppliers. The longer you wait, the worse the situation will become

What Happens if You Can’t Afford to Pay Your Suppliers?

If you can’t afford to pay your suppliers, there are a few potential consequences. There are a number of things a supplier can do, the first thing is your supplier may stop doing business with you. This means you won’t be able to get the supplies you need to keep your business running. Second, your supplier may take legal action against you.

This could result in a County Court Judgment or negative publicity for your business. Third, your supplier may demand payment in full immediately. This could put a strain on your cash flow and make it difficult to keep your business operating. Ultimately, if you can’t afford to pay your suppliers, it could lead to the downfall of your business.

What are the Likely Consequences of Not Paying Your Suppliers ?

The likely consequences of not paying your suppliers could be a growth in creditor pressure, as well as unwanted visits from debt collectors before long you may find yourself in a position where your company is informed it has been given final notice or even worse-a winding up order. All this due to lack of payment on an unpaid invoice!

Company directors and business owners should act quickly to resolve this situation, but what can you do?

(1) Should you Stop Trading?

As a business owner, you may face many difficult decisions – and one of the most challenging is whether to cease trading when you’re unable to pay suppliers. On the one hand, it can be tempting to keep going in the hope that things will improve. However, if you’re constantly struggling to meet your financial obligations, it may be time to call it quits.

Before making a final decision, there are several factors you should consider. First, assess your financial situation and determine whether continuing to trade is viable in the long-term. If not, you may need to consider your options for dealing with creditors, including negotiating payment plans or declaring insolvency.

You should also think about the impact ceasing trading will have on your employees and customers. If you do decide to close up shop, make sure you do so in a way that minimizes the disruption for everyone involved.

(2) Communicate with your Suppliers

Good communication with your suppliers is essential to maintaining a healthy business relationship. If you are unable to pay them on time, it is important to let them know as soon as possible.

Many suppliers are willing to work with their customers to develop a payment plan that works for both parties. By keeping your suppliers informed, you can avoid misunderstandings and potential delays in receiving the goods or services you need. Its worth also looking at different business turnaround options at this point.

(3) Explore Asset-based Lending Options

As anyone who has ever applied for a loan knows, the process can be daunting. Lenders will often request a variety of documents and financial statements in order to assess your creditworthiness. However, there is another type of lending that does not focus on your credit history. Asset-based lending is a type of lending that uses collateral such as real estate or equipment to secure the loan.

This type of lending can be beneficial for borrowers who may not qualify for traditional loans. Asset-based loans can also be less expensive than traditional loans, making them a viable option for small businesses or startups. If you are considering borrowing money, be sure to explore all of your options, including asset-based lending.

(4) Consider a Company Voluntary Arrangement (CVA)

Company Voluntary Arrangements are a formal procedure whereby a company in financial difficulty proposes an arrangement to its creditors to pay part or all of its debts over an agreed period. This is a legally binding agreement which, if accepted by 75% or more in value of the company’s unsecured creditors, binds all creditors, including those who did not vote for or attend the meeting.

The advantage of a Company Voluntary Arrangement is that it gives the company breathing space to restructure its affairs and continue trading. It also has the benefit of being less damaging to the company’s reputation than going into administration or liquidation. If you are struggling to pay your suppliers, then a Company Voluntary Arrangement could be the right solution for you.

(5) Administration Could be a Viable Route

Company administration could be a viable route for insolvent companies. It is a process whereby an administrator is appointed to manage the affairs of the company. The aim of administration is to rescue the company as a going concern or achieving a better result for the creditors than would be achieved if the company were wound up. An administrator has wide-ranging powers and these are set out in the Insolvency Act 1986.

One of the main advantages of administration is that it provides a moratorium on creditor action. This means that, once administration has been successfully obtained, creditors are prevented from taking any further action against the company or its property. This gives the administrator time to assess the financial position of the company and develop a plan for its future.

In addition, administration can be used as a means of selling the business as a going concern, which often achieves a better result for creditors than would be obtained if the business were sold in parts. However, it should be noted that there are some disadvantages to company administration.

For example, it is a relatively expensive process and there is no guarantee that it will be successful. In addition, it can be difficult to obtain approval from creditors, particularly if they believe that the company can be successfully restructured without resorting to administration. As such, company administration should only be considered as a last resort for insolvent companies.

(6) Voluntary Liquidation

In business, there are many risks that a company may face which could lead to its insolvency. In the event that a company is unable to pay its debts, it may be wound up through compulsory or voluntary liquidation. Voluntary liquidation occurs when the directors of the company resolve to wind up the affairs of the company, and this can be done either by passing a resolution at a meeting of shareholders or by filing a notice with the Registrar of Companies.

The main advantage of voluntary liquidation is that it gives the directors of the company more control over the winding up process. This can be important in preserving assets and minimising liabilities. However, it should be noted that voluntary liquidation is a serious decision and should not be undertaken lightly. If you are considering voluntary liquidation for your company, you should seek professional advice to ensure that it is the right course of action for your business.

How to tell a Supplier you Can’t pay Them

When you run a business, there are always going to be times when you can’t pay your suppliers on time. It’s an unfortunate reality, but it doesn’t have to be the end of the world. If you find yourself in this situation, the most important thing is to be honest with your supplier and to come up with a plan to get caught up. Below are some tips on how to do this:

1. Pick up the phone: Many businesses are hesitant to pick up the phone and talk to their suppliers, but this is often the best way to handle the situation. You can explain your circumstances and work out a plan that works for both parties.

2. Be honest: It’s important to be upfront about your financial situation. Your supplier will appreciate your honesty and it will help build trust between you two.

3. Offer a partial payment: If you can’t afford to pay the full amount owed, offer to make a partial payment. This shows that you’re still committed to paying off your debt and it may help ease the supplier’s concerns.

4. Negotiate terms: If possible, try to negotiate more favorable payment terms with your supplier. This could involve extending the due date or reaching a new payment agreement.

5. Get professional help: If you’re struggling to manage your finances, it might be worth seeking out professional help. A financial advisor can help you get your business back on track and make sure you stay organised in the future.

Need Further help to raise finance

If your business cannot pay its suppliers due to short term cashflow issues, simply contact one of our finance experts today via our online enquiry form to get your cash flowing again.

Lee Jones profile picture
Business Finance specialist at Invoice funding | + posts

Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.

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