Minimising Cashflow Issues

There is no doubt that we are living in challenging and uncertain times. We are all worried about the possible consequences COVID-19 could have on our health and wellbeing as well as our friends and family. Unsurprisingly, the virus has had and will continue to adversely affect our economy too.

As the virus spreads further, the pressure on businesses and the strain on cash flow will be felt across the world. With the current restrictions being imposed by the government, many businesses will be forced to suspend operations or find alternative means of working. 

If your customers are in financial difficulty and become unable to meet their financial obligations to you, it will be important to react to those issues quickly. 


This is always key. It may be that you can look to restructure any payment arrangement, which would allow you to maintain your own cash flow and your relationship with the customer. Record any agreement in writing, so that all parties are clear on what their obligations are. 

Obtaining security 

If the debt is significant, or if you feel unsure about your customer’s long-term financial position and the likelihood that they will be able to meet their payment obligations, you could look to obtain some additional security.

Alternatively, if you are at the start of a new business/ payment arrangement, it may be advisable to obtain some form of security at the outset. 

Personal guarantee and indemnity agreements 

One option is to enter into a personal guarantee and indemnity agreement with a director of the debtor company or a parent company. Such an agreement would make the director or parent company liable for the debt if the company cannot meet its payment obligations. This could also work vice-versa, if the main debtor is an individual then a company or another individual could guarantee their payment obligations to you as well. 

It’s essential to ensure that a guarantee is properly drafted and some consideration passes between the parties to make it effective or the document needs to be signed as a deed. In some situations, the guarantor will need to take independent legal advice to ensure that it is binding. A personal guarantee is not without risk – if the individual or company guaranteeing those payment obligations to you also enters into financial difficulty, then this would not afford you a great deal of security. Nonetheless, it is certainly an option to consider. 


Fixed charges 

A charge represents an agreement between the debtor and a creditor, under which the debtor’s asset(s) is held as security for the debt. It confers the right to appropriate the charged property and use the proceeds of sale to satisfy the debt. 

A fixed charge can be secured against a particular asset, most commonly land or property. You could do this on a voluntary basis at the outset of the agreement/ contract although it would be advisable to seek the advice of a solicitor on the mechanics of drafting the charge and registering it against the property at the Land Registry. If the property is already subject to a mortgage or charge, then you may need to seek that lenders consent to the additional charge. 

Alternatively, if it is too late to agree a voluntary charge or if the debtor will not agree to one being imposed, you could commence proceedings against the debtor which, if successful, will result in a judgment being granted by the court. Once you have the benefit of a judgment order, you can make an application for a charging order without the consent of the debtor. 

A fixed charge will prevent the debtor from disposing of the asset without your consent and will entitle you to claim a proportion of the proceeds of sale in order to satisfy your debt. More than one charge can be fixed against an asset and it is generally a case of ‘first come first served’, in that at the point of sale, the beneficiary of the first charge will be paid first. 

Floating charges

A floating charge is a charge taken over a shifting pool of assets. That pool of assets will change throughout the course of business. This means that the assets can be disposed of without the consent of the charge holder. The floating charge becomes a fixed charge upon default and you could then look to sell the assets. However, the risk is that when that time comes there are no assets left in the pool. A fixed charge is therefore preferable, but a floating charge can be a good alternative if the debtor does not own any high-value assets on which a fixed charge could be secured. 


If you are a business that has suffered a loss due to disruption caused by the virus, you should also look to review your insurance cover. You may have the benefit of “business interruption insurance”, although such insurance provisions are often very strict and you will have to act quickly, it is worth looking in to as an option to potentially recover any losses that are not recoverable directly from your customers. 

Debt recovery 

Whilst taking security is important, it may be that you find yourself with no option but to commence court proceedings against the debtor in an attempt to recover your losses. 

If you are successful in those proceedings, the court will grant a judgment order in your favour and order the debtor to pay you what you are owed. If payment is not made, enforcement action can be pursued. 

In addition to the debt in business to business claims, you can often also claim an administration fee, interest at 8% above base rate and reasonable legal costs.

Options for enforcement of a judgment order include taking control of goods through a writ of control (which can then be sold), making an application for an attachment of earnings order so that a proportion of the debtors’ wages per month are paid to you, or possibly the pursuit of a third party debt order.

If you have any concerns about managing your cash flow and debtors please contact our specialist Debt Recovery Team.

We will be continuing to share updates as the situation around COVID-19 evolves. You can find the contingency plans that we have put in place, along with further advice, here.

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Stephens Scown

Stephens Scown

Stephens Scown
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