Recognise the warning signs of business insolvency

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Updated: 3rd February 2021

Is Your Business Insolvent? What Are the Warning Signs?

If your business is in debt and you believe it may be insolvent, there is no time to lose. Consult with a licensed insolvency practitioner to help turn your business around.

One of the unfortunate aspects of insolvency is that it can quickly sneak up and catch you by surprise. Of course you know that you are behind in paying debts, but so are a million other businesses in the current economic climate. There is a definite line of distinction between being in debt and being insolvent.

Since being declared insolvent is a serious matter, it is important that you act on it as soon as you recognise the signs. Creditors, amongst which is HMRC, can seize control of your company so you will need to act quickly to avoid compulsory liquidation, administration or receivership. If you are having difficulties in determining whether or not it is time to call for help, consider the following warning signs of insolvency.

Evaluate Business Relationships with Creditors

Cash flow is the biggest warning sign you are likely to recognise. If you are having trouble paying your creditors on time or in the amount due, it is likely to be that you are having problems with cash flow. Take a look at how you stand with your creditors and you may be able to discover if you are at risk of being insolvent or are already there! Things to look for might be:

  • Problems ordering stock because of unpaid debts
  • Creditors/lenders refuse new credit
  • Creditors have threatened legal action
  • Creditors/lenders refuse to extend your current credit line or deadlines
  • Creditors calling daily to request or demand payment
  • Suppliers taking out trade insurance because of previous lack of payment 

Creditors harassing you on a daily basis or the inability to get credit are two red flags which should alert you to the fact that your business is in distress. Your company may not yet be insolvent, but there is every indication that you soon will be if something isn’t done immediately! 

Paying and Reporting to HMRC & Companies House

HMRC can be your biggest problem if you are late in reporting or in paying. They act quickly when there is any question as to whether or not a company is insolvent, which in turn can open up a whole new can of worms. Rather than be petitioned or penalised by HMRC or Companies House, it is better to take a look at your payment history and if you have reported as you should. PAYE not paid by the 19th of the following month can quickly bring the bailiffs to your door. Are you filing your company accounts in a timely manner with Companies House and have you filed your annual return? If not, this is a warning sign to be aware of! 

Are Your Debtors Constantly in Arrears?

Sometimes it is impossible to pay your bills because your company is not being paid on time. If your debtors are not making payments as they should, your business will likely be suffering from a lack of cashflow as mentioned above. This has a domino effect because you aren’t being paid, your creditors will not be paid.

If you have used a factoring company and are not being paid as you had anticipated, it signals one of two things. Either your accounts are not paying them or they simply are not paying you as arranged. In either case, Real Business Rescue can help you evaluate what is going on and we can offer advice and a viable alternative. 

Warning Signs in Business Management

There may be times when the business is not being managed as it should and one owner or director is made to carry the brunt of the burden. This is a surefire sign that things are not running smoothly and this can lead to uncertainty in all aspects of the company, especially in finances. Insolvent companies tend to have problems with:

  • Incorrect or insufficient information
  • Directors inability to solve problems
  • Inability to handle all creditors; some are simply ‘ignored’ whilst others are paid
  • Problem solving takes a bulk of your time, leaving work unfinished

If any or all of these problems are discernible in your company, there is every likelihood that your business is either insolvent or will be in the near future. Something needs to be done quickly to rescue your business plan.

Real Business Rescue is expert in helping turn around distressed companies. Sometimes it is only a matter of improving cash flow by cleaning up management problems. Other times more drastic steps need to be taken. The point is, if you recognise any of the warning signs of an insolvent company, it is important to seek advice as quickly as possible. There are a number of solutions which can help put your business on the road to recovery but we need to analyse just what is going on. Initial consultation is free so there is no need to worry about compounding your debt. Call us today to set up a time to talk to our expert insolvency practitioners. We can help you read the warning signs!

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