Managing your Covid debts

Businesses have accumulated record levels of borrowings and debts during the pandemic.

Covid-related loans totalling around £80bn were handed out, on top of which rent arrears built up and HMRC allowed mass deferrals of PAYE and VAT.

Unfortunately, apart from some forgiveness by landlords, all of these extra liabilities will have to be repaid at some stage.

All might have been well, if the pandemic hadn’t lasted so long and then been followed immediately by supply chain disruption, labour shortages and rampant cost inflation.

Businesses were supposed to have bounced back quickly after the initial Covid shock, but for many this just hasn’t happened.

Entrepreneurs are now juggling scarce cash resources to finance ongoing trading and to try to pay off those legacy debts.

Two things are vital now. One is to have a thought-through, pragmatic plan for allocating cash between competing claims.

The other is managing the expectations of creditors, which means maintaining a regular dialogue with them.

The most important thing is not to promise what can’t be paid. Far better to be honest and negotiate delayed payment terms and even debt write offs.

The sooner this is started, the better the outcome and of course, the relentless stress of coping with creditor pressure can be reduced.

Most creditors know the problems businesses are facing and would much rather recover some of what they’re owed, rather than lose everything by forcing a debtor over the edge into insolvency and at the same time lose a customer.