As a creditor, there are several warning signs that may indicate a company is insolvent or approaching insolvency. Common indicators include missed or late payments, requests for extended payment terms, or poor communication regarding outstanding debts. These may suggest that the company is struggling to meet its financial obligations.
How to assess financial health
To assess the company’s financial position more thoroughly, creditors can review financial statements:
- The balance sheet may show that the company’s liabilities exceed its assets, showing a risk of insolvency.
- The cash flow statement reveals whether the business generates sufficient cash to cover operating expenses and debt repayments.
What creditors can do next
If a company appears to be insolvent, creditors may consider options such as issuing a statutory demand, negotiating a repayment plan (this may be via a Company Voluntary Arrangement CVA, which is commenced by the company), or participating in formal insolvency proceedings such as administration or liquidation.
