How to get invoices paid and assist Clients in financial difficulty

Feebs77

Hi all - hoping you can advise on a tricky situation!

I am a limited company. I have completed the service I was asked to do, and my Client is very happy with the outcome.
However, my Client has just informed me they can't pay me, as outlined in our payment terms,  till they apply to a loan company to release money for the project.

There is no guarantee they will get the loan they need (to pay me) as they will probably need more work done (which I can't do) to get the development loan they need - which I told them from the start.

A delayed payment dependant on my Client getting a development loan wasn't what was agreed, but the Client is a long family friend, and it's likely the project may be a profitable one - eventually (but I estimate years).

Financially I need this invoice paid within 30 days as my business is new and my second year of accounts need to show profit by end of this financial year - which they will not if my client doesn't pay. 

The only solution I can think is:
1) Get the client to pay
2) Pay myself and offer a loan with interest to the Client.

I am not sure what other options there are that will mean my second year accounts show profit as I also need to assist my sister by going on her mortgage (as a minor contributor towards the mortgage). Without my help she may have to sell her flat.
I was hoping you can advise!

Also - is this within an accountants remit to advise me on my options?

J_B

Why does your business need to "show a profit"?

Savvy_Sue

J_B said:

Why does your business need to "show a profit"?

I think the OP wants his business accounts used to support his sister's mortgage? 

You could consult an accountant, tbh advice here is usually that if you have a limited company, it's often worth having an accountant because the filing of company accounts is not as straightforward as filing personal accounts, AND they will be aware of legal ways in which you can offset expenses against your tax bill etc. 

I'd definitely take advice before offering a loan to the client. Mixing friendship and business doesn't always end well, and what do you then do if the client doesn't get the loan, or for some other reason the business fails before the loan is repaid?

Feebs77

Savvy_Sue said:

J_B said:

Why does your business need to "show a profit"?

I think the OP wants his business accounts used to support his sister's mortgage? 

You're right Savvy_Sue. My business is my only source of income and I need to show 2 years of accounts - with income - to qualify for decent rate mortgages.

I have now told my Client I can't wait for a late payment on this invoice - so I'm hoping it just gets paid.

But if they can't pay (because they don't have the cash), I need to find out if there is a way I can pay myself because my profit this year is zilch without that invoice paid. 

Nightmare! Will be talking to my accountant tomorrow.

Owain_Moneysaver

If the client is that good a friend they'll pay your company themselves, instead of putting you to the inconvenience.
But they aren't, and if they're reliant on loan funding release, aren't complying with the terms of the loan to get funding released, haven't understood that they need to do that, and can't meet those requirements, then you can forget any notions that this client might be profitable in years to come. This client is incompetent at running their business. 
This client is apparently already trading whilst insolvent, which is a criminal offence, and probably isn't going to last more than six months at best. It doesn't matter how "profitable" their business is, if they haven't got the cash flow coming in to pay their bills they will go under. 

Send a final letter before action and if they don't pay within 14 days, go to court. You might be lucky and get your money while this client still has any assets. Or write the money off, because you aren't going to see it ever again. 

If I'm wrong, and the client turns out to be the next Amazon, you can feel cross with me in five years' time.

Feebs77

My client isn't a company. They are trying to get a development loan to pay to get their own house converted into 3 flats.
The sale of 2 of the flats will pay for the building work and allow them to keep living in 1 of the flats.

But till the development loan is obtained, they can't pay for anything, including my services.

However, I never agreed to work for free, as I can't afford it. So I need to come up with a solution regarding my accounts - if my client can't pay me. Taking her to court is something I can't see myself doing - as this is a long term family friend.

oldbikebloke

Feebs77 said:

You're right Savvy_Sue. My business is my only source of income and I need to show 2 years of accounts - with income - to qualify for decent rate mortgages.

I have now told my Client I can't wait for a late payment on this invoice - so I'm hoping it just gets paid.

But if they can't pay (because they don't have the cash), I need to find out if there is a way I can pay myself because my profit this year is zilch without that invoice paid.  

Nightmare! Will be talking to my accountant tomorrow.

it sounds like you do not understand the difference between "profit" and "debt" 
your company has issued an invoice, that represents income for it, and the profit flows from that after any costs have been deducted.
whether the invoice is physically paid has no bearing on the amount of income in the accounts, and thus the profit. You are not claiming you never did the work, so you are not cancelling the invoice. It therefore sits in your accounts as a debt owed to your company on its balance sheet, with the profit sitting on your profit and loss account.

I agree that at a point in time you may decide the invoice is never going to be paid and so you will write it off, ie reverse the entries to remove the income and therefore lower the profit. Whilst ethically you should do that as spoon as you suspect it may the the case, there is no requirement that you do so now, you could do it after year end and therefore still show the profit in the accounts for mortgage purposes. 
That said, not all lenders are stupid and they ,may see there is a large unpaid debt owed to the company and as a result the bank balance is low.  they may well then question what is happening with your sales and the payment of them - then again they may not notice since what they are interested in is how much money you have, or can, take out of the company.

Definitely a query for your accountant, as they prepare your accounts and you sign them off as being "correct". Since you have the profit, you could declare a dividend to take that profit out, even though the company does not have the cash to physically pay the dividend.

Mistral001

You need to guard against this friend not getting a grant and not paying at all.  
Have you thought about getting say half of the money paid now with a commitment to pay the rest at a certain time in the future.  A bird in the hand etc.  

Penguin_

Feebs77 said:

Hi all - hoping you can advise on a tricky situation!

I am a limited company. I have completed the service I was asked to do, and my Client is very happy with the outcome.
However, my Client has just informed me they can't pay me, as outlined in our payment terms,  till they apply to a loan company to release money for the project.

There is no guarantee they will get the loan they need (to pay me) as they will probably need more work done (which I can't do) to get the development loan they need - which I told them from the start.

A delayed payment dependant on my Client getting a development loan wasn't what was agreed, but the Client is a long family friend, and it's likely the project may be a profitable one - eventually (but I estimate years).

Financially I need this invoice paid within 30 days as my business is new and my second year of accounts need to show profit by end of this financial year - which they will not if my client doesn't pay. 

The only solution I can think is:
1) Get the client to pay
2) Pay myself and offer a loan with interest to the Client.

I am not sure what other options there are that will mean my second year accounts show profit as I also need to assist my sister by going on her mortgage (as a minor contributor towards the mortgage). Without my help she may have to sell her flat.
I was hoping you can advise!

Also - is this within an accountants remit to advise me on my options?

But surely the invoice, as it's been raised, is already included in your Profit & Loss account as revenue. The actual physical transaction of the money coming in will affect your Balance Sheet as it will reduce your debtors & increase your bank balance.

martindow

Feebs77 said:

this is a long term family friend.

I suspect for not much longer ...

Whatever happens with this invoice, maybe it is time to look at your charging structure.  Maybe take a percentage as a deposit at the beginning and staged payments if it is a major piece of work.

SmashedAvacado

you could put a charge on the properties that will be released when the loan company comes in to offer the debt. This will protect you as a secured creditor. You could lend money on the basis that if they default in repaying you, you can repossess the properties, have them sold and then collect your money.  This assumes that they dont already have finance on the properties.