Insolvency occurs when a company cannot pay its debts as they fall due (cash flow insolvency) or when its liabilities are greater than its assets (balance sheet insolvency). In most cases, a company in financial distress will be experiencing both cash flow and balance sheet insolvency.
What are the early warning signs of Insolvency?
There are a number of warning signs to look out for which indicate that a company may be experiencing financial distress. These include:
- Falling profits or increasing losses
- Increasing borrowing
- Increasing levels of trade creditors
- Increases in debt due to HMRC
- Evidence of County Court Judgments
- Consistently missing payment deadlines
Actioning promptly to prevent further downfall
Spotting these key indicators in good time, whether in your own business or that of a customer, can help mitigate the risks of insolvency and bad debts.
