Member Article

IVAs: how can they help your business?

IVAs: What are they and how can they help your business?

We all struggle with some degree of debt at some point in our lives. For many, debts are largely manageable and repayments to multiple creditors can be maintained so that they remain timely and correct.
However for some of our customers, an unlucky string of events or mere money mismanagement can see even the smallest of debts quickly spiral out of control – which is when businesses, naturally, need to chase them.

Even in these unfortunate circumstances when a customer feels overwhelmed by the amount of money they owe to your business and/or multiple other creditors, there is help at hand for them – and for your business.
This help comes in the form of an Individual Voluntary Agreement (IVA). An IVA will enable the customer to manage their repayments to your business.

Your business will only receive a percentage of the payments originally owed, though this is better than getting nothing at all. A customer taking out an IVA may be beneficial for your business if they would otherwise be made bankrupt; through an IVA you can at least recoup some of your losses
What is an IVA?

An IVA is a binding contract drawn up jointly between an individual and a business on the amount and frequency of any future payments to be towards the debt. The amount and frequency of the payments is agreed based on what the customer can afford, and replaces any previous ‘unsecured’ debts owed by them to your business.

Usually, an IVA involves a percentage of the total amount actually owed, which, despite not being perfect, does guarantee that creditors will get some money back. However, the money paid back will only be over a period of five years, with the remaining debts written off entirely.

For example, if an individual owed your business £10000, and could only pay back £100 per month, over a five year period or 60 months, then the business would only receive £6,000 back, with the remaining £4,000 debts written off permanently. Also, it’s worth considering that the insolvency practitioner should be paid fees, which may eat into the debtor’s ability to make repayments.

What is an IVA for?

An IVA is designed a) for the individual, as an alternative to bankruptcy, and b) for businesses, as a way of ensuring that they don’t fall foul of defaulting customers whose circumstances, for whatever reason, have left them unable to keep up with payments.

IVAs are a great option for individuals for a number of reasons. Compared to bankruptcy, they’re quicker to arrange, yield a higher return in terms of debt repayment and are more cost-effective.
And for businesses, they ensure protection against loss of income due to circumstances outside of their control.

About the author:

Quentin Schulz is an independent personal finance advisor who works with websites like payplan.com on how to help people reduce their debts.

This was posted in Bdaily's Members' News section by Jonny Marshall .