Five steps to helping self-employed clients with debt advice
With the number of self-employed individuals at record levels, Nick Payne, Insolvency Practitioner at free debt advice provider PayPlan Bespoke Solutions Limited, explains how self-employed clients need a tailored approach.
The BBC has reported that the number of self-employed workers has risen from 3.3 million in 2001 to 4.8 million in 2017. PayPlan Bespoke’s specialist self-employed team has doubled in size over the past two years, as more self-employed clients are experiencing financial difficulties.
PayPlan Bespoke gives clients a case worker who is familiar with the intricacies of self-employed clients and the desire to protect their business.
A wide range of people are classed as self-employed. These include one person businesses such as: taxi drivers, partners in a partnership, Directors of Limited Companies and buy-to-let property owners.
Are you self-employed? Here are some tips to be mindful of:
- Take action as early as possible
By doing so, you’ll have the greatest range of options available. Furthermore you’ll be more likely to avoid legal action, which may affect your business. In addition, creditors are likely to keep adding interest and charges until a debt solution is agreed, which will increase your debts. By seeking help early, it’s unlikely you will be forced into bankruptcy. Instead, other options such as an Individual Voluntary Arrangement (IVA) or Debt Management Plan (DMP) will allow you to reduce debt payments to an affordable level.
- Work out a cash flow projection
Whilst self-employed, it can be difficult to work out an affordable amount to pay your debts. It’s common that business and personal income aren’t entirely separated from expenditure. As such, the true profitability of the business may be hard to calculate.
Business creditors are more likely to accept offers of repayment if they can see a cash flow projection of your business’s income and expenditure for the next twelve months. This can also help you understand how profitable your business is, while also providing you with a useful business budgeting tool.
The net profit of the business can be calculated by deducting the business costs from the business income. After making an allowance for Tax and National Insurance, you’ll see how much you can take from the business for personal living costs. After deducting living costs, the amount left over should be an affordable, sustainable amount to offer your creditors.
- Consider if any debts need prioritising
In most circumstances, unsecured creditors will be treated equally. However, as you’re running a business you may wish to prioritise some of your unsecured debts. For example, you may need to continue paying suppliers in full to guarantee future supply. Or perhaps you need an overdraft to pay for business running costs until you get paid.
It’s a good idea to check whether you need to prioritise any debts, as making reduced payments to certain creditors might adversely affect your business.
- Consider how different debt solutions may impact a self-employed client
In bankruptcy, you may have difficulty trading. Business assets may be sold and you’ll also be unable to act as a Director of a Limited Company without leave of the court.
A longer term plan such as a DMP, where creditors are repaid in full over an extended period of time may not be appropriate. The tax authorities often require payment in full within 12 months, which may be unachievable.
In an IVA, you’ll make reduced payments usually for a five to six year period. If you stick to the terms of the IVA, the remaining debt will be written off at the end. An IVA may be more suitable as interest and charges are frozen and the creditors included in the IVA are unable to take legal action, if the IVA is accepted.
- Consider whether the client’s income will fluctuate
It’s important to consider whether your income fluctuates, as this may affect whether you can afford a regular fixed payment.
If this is the case, a DMP may not be suitable, as creditors usually expect a regular payment. However, payments in an IVA can be flexible, taking into account any seasonal fluctuations. For example a gardener might receive most of their income in summer, and not as much in winter. You can make payments as and when you receive your income, rather that needing to make a payment every month.
When working with clients who are self-employed, a realistic and pragmatic approach is required to put together an affordable, sustainable repayment to their creditors. All the while, working to protect the business.
It is possible for your business to survive, and indeed thrive, while you work your way out of debt.
To get in touch with the self-employed team for further advice or to refer a client, visit: www.payplanbespoke.com