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InFocus

Managing growing practice debt

It is important to be able to identify where problems may be coming down the line so that you can take actions now to improve the position

Even without the COVID-19 pandemic, debt levels are something all businesses should be keeping a close eye on to ensure they do not spiral out of control. However, clearly this is something which is now of even more importance given the additional pressures the various lockdowns have put on all businesses, with veterinary practices being no exception.

Having practice debt is not, in itself, an issue. However, for the long-term viability of any business, it is key to minimise the debt levels where possible and increase cash flow. It can be easy to overlook the financial aspects of your business when you are working long hours looking after animal welfare; however, it is important to keep the situation under control to ensure you do not breach the legal obligations you have as a director which could leave you exposed to personal risk.

The government has brought in various measures to provide businesses with breathing space during the pandemic. For example, creditors are not able to present winding up petitions until after 30 June 2021 (assuming this deadline is not further extended) unless it can be shown that coronavirus has not had a financial effect on the debtor company or the circumstances would have arisen even without the financial effects of coronavirus. Accordingly, there are fewer remedies available to creditors at this time which means outstanding debts may not appear to be such an issue as they otherwise would.

However, these temporary measures will eventually come to an end, likely resulting in a flurry of debt recovery action. It is therefore important for businesses to stay on top of debt levels even if there is less pressure at this time to ensure you aren’t caught out once the restrictions on recovery have been lifted.

The good news is that there are a number of simple steps you can take to stay on top of the debt position:

  • Firstly, check your balance sheet and cash-flow forecast and make sure you know them well. It is important to be able to identify where problems may be coming down the line so that you can take actions now to improve the position
  • Speak to your suppliers to see whether they will agree to longer credit periods or instalment arrangements to take the pressure off cash flow
  • If you have any bank debt, it would be worth requesting payment plans if needed – now is the time banks are going to be most flexible in this respect as they are keen to be supportive of businesses which may have struggled as a result of the pandemic
  • The same applies to HMRC. If you have outstanding VAT and PAYE liabilities, consider whether a time to pay arrangement would be useful
  • It is important to keep these key stakeholders updated to maintain a positive relationship and reassurance that any difficulties are only short term
  • Be proactive and consider refinancing options to consolidate your debt which may make it easier to manage
  • Keep your supplier’s position under review – they will not be exempt from financial pressures themselves and you do not want to find yourself having to find a new supplier at short notice where your bargaining position may not be as strong
  • Also consider your own debtor position as the impact of bad debt can be hugely damaging. It may be a secondary issue when faced with a pet needing emergency treatment; however, it is important to review your cash-flow management systems. Consider how much credit you give your own customers. Are debts chased on a regular basis? Do you need formal debt recovery assistance to recover unpaid debts? Anything you can do to bring cash into the business more quickly will reduce pressure on your overall cash-flow position

If, ultimately, you feel that your debt levels are no longer manageable, you should seek specialist advice on the options available to you. We cannot stress enough the importance of seeking early advice in this respect as the available options will inevitably reduce as the position worsens.

Hayley Phelps

Hayley Phelps is a Legal Director in the restructuring and insolvency team at Harrison Clark Rickerbys, specialising in transactional and advisory work. She acts for all types of stakeholders throughout restructuring and insolvency processes to try to find solutions that work for everyone.


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