Arrears

Definition

A business is in arrears when it has missed one or more scheduled payments and the amount remains unpaid past its due date. The term applies to loan instalments, but also to rent, tax, supplier invoices and PAYE. Being in arrears is a factual state — money is overdue — and it is distinct from formal default, which is a contractual status a lender may declare after arrears persist.

In plain terms

If you owe a payment on the 1st and it is still unpaid on the 5th, you are in arrears. The longer it stays unpaid, the deeper the arrears. Most lenders track arrears in stages — 30, 60, 90 days overdue — and the response escalates at each stage, from a reminder to formal action. Arrears are recoverable: catching up clears them. The danger is letting them build until they tip into default, which has heavier consequences for your business credit profile.

Why it matters to your business

Arrears are an early-warning light, not just an admin problem. They signal a cash-flow squeeze, and left unaddressed they can damage your credit file, trigger late fees and strain supplier relationships. Crucially, lenders respond far better to a director who calls before a payment is missed than to silence afterwards. A short, honest conversation often unlocks a revised schedule or a brief breathing space. The worst move is to ignore the letters.

• Hurts your business credit profile
• May attract late fees
• Best handled by talking to the lender early

How to handle arrears early

If you can see a payment slipping, act before the due date. Review your cash-flow forecast to understand whether this is a one-off timing gap or a deeper shortfall. Contact the lender, explain the position and ask what options exist — a payment holiday, a revised term, or a partial payment now with a catch-up date. Document what is agreed. Where the squeeze is structural rather than temporary, refinancing the debt onto a more affordable footing may be the cleaner answer.