Specialist Debt Collection Agency P&J have noticed a significant rise in the number of IVAs debtors are now taking out and how much harder it becomes for small businesses to recover the money they are owed.

P&J’s observations are echoed throughout the UK.  2012 saw a significant increase in the number of people taking out IVAs and consequently, there has been a similar spike in insolvencies.

What is an IVA?

An IVA (Individual Voluntary arrangement) is a formal alternative for individuals wishing to avoid bankruptcy. It was established and is governed by part V111 of the Insolvency Act 1986 and constitutes a formal repayment proposal presented to a debtor’s creditors via an insolvency practitioner. Insolvency practitioners charge initial and ongoing fees that are in addition to the debt.

What can a small business do?

As a creditor you have complete freedom to reject an IVA offer. This is only material if you have more than 25% in value of the total creditors that decide to vote at the IVA creditors meeting.

If you have less than 25% of the vote then the IVA will be accepted. In this instance they will be bound by the decision of the majority IVA creditors.  If your rejection of the IVA is dismissed due to being outvoted by the majority of creditors there isn’t much you can do.

On the positive side, it is more likely that you will receive payment of your debts, at least in part, than if your customer had not applied for an IVA.

After the IVA has been agreed you are also no longer allowed to make contact with your debtor, other than to send an annual statement.  It is out of your hands.

The answer, as with many debtor problems, lies in prevention, or being first in line for payments before your customer’s situation requires an IVA.

Become an expert in spotting the signs

IVAs are for individuals, not businesses (a business can arrange a similar CVA), so any credit accounts with consumers should be set up with thorough risk assessment carried out first.

Throughout the transactional relationship, you should put processes in place to allow your accounts team to respond to late payments efficiently. Providing you have communicated clear payment terms when the account is set up, you should be confident in pursuing debtors in line with those conditions.

Any changes to payment promptness, or lack of response to emails, phone calls or posted notices should be acted on immediately.  If excuses are made, communications are ignored or suspicions are aroused, it is advisable to contact a reputable debt collection agency for advice or to initiate activities to ensure you get paid before your debtor is forced to apply for an IVA.

For more information on preventing and solving debtor problems, contact P&J .