When you’re struggling to pay multiple debts, it helps to know which ones should take priority and which can be dealt with later. Some creditors have more power than others to recover debt, and can do so without going to court.
Here’s a list of the main priority and non-priority business debts, to help you focus attention where it’s most needed.
- Business mortgage/rent payments
Business mortgage lenders and landlords have the right to take action without a court order. Your business premises could be repossessed, or equipment/stock removed, so it’s important to keep communications open with your lender or landlord
- Business rates
Business rates have been notoriously high in recent years, but you can appeal against the ‘rateable value’ assigned to your premises. Various reliefs are also available for qualifying businesses, sometimes up to 100%.
- Gas and electricity
If you fall behind on energy payments, your provider can cut off supplies to your premises quickly, but they must give you advanced notice. Energy suppliers are likely to be open to negotiations, and could you offer an extended payment plan.
It’s a good idea to pay your latest bill if you have arrears for water, and then begin to tackle the arrears if possible.
- Income tax, VAT and National Insurance
HMRC can take action without a court order, so as soon as you think you won’t be able to meet a deadline it’s important to get in touch with them. You might be able to negotiate a Time to Pay arrangement for all your HMRC liabilities.
- Lease and hire purchase agreements
If you voluntarily return an asset and end the lease or hire purchase agreement, you’ll remain liable for up to half of the original amount. Once the item has been returned, the remaining debt then becomes non-priority.
- Trade suppliers
If one of your suppliers is the only company who can provide certain items, you’ll probably want to regard them as a priority creditor to protect your own ability to trade.
- Bank loans
Bank loans secured on an asset should be treated as priority debt. Unsecured loans are generally non-priority, unless you fear the bank will restrict your company accounts in some way.
Your accountant’s fees may need to be treated as priority if they are refusing to return your books, and you need these to complete a tax return.
- Personal guarantees
Any form of borrowing with a personal guarantee is a priority debt. Your lender may decide to call in the guarantee if loan repayments fall behind, and they see no realistic hope of payment.
The consequences of failing to pay non-priority debts are less severe:
- Business credit cards and overdrafts
These generally fall into the category of unsecured loans, and are classed as non-priority.
- Business supplies (non-essential)
Non-essential business supplies could include office stationery, computer accessories, or accounts with suppliers of cleaning products, for example.
- Some bank/building society loans
Loans not secured on an asset or by personal guarantee are generally considered a non-priority debt.
- Charge cards
The credit agreement for charge cards such as American Express, differs from a standard credit card. You may find that the provider is not as willing to negotiate with you for extended terms.
Real Business Rescue has a team of insolvency experts to help you identify priority and non-priority debts within your business. We can contact creditors on your behalf to establish an affordable payment plan, or if applicable, enter negotiations for a formal insolvency solution. Our extensive office network comprises 72 offices across the UK with a partner-led service offering immediate director advice.