Insolvency Recovery

A business or person is insolvent if they cannot pay their bills on time. In difficult trading conditions and when credit is tight, many small organisations may find themselves struggling to fulfil their obligations to creditors. It might be a one-off situation due to late payment by one or more larger customers. However, it’s also a possible warning sign of impending insolvency.

Other indicators of insolvency are that the business is always working at or near its maximum overdraft limit, and is constantly seeking new sources of credit. Customers may be taking longer to pay and buying new stock might be difficult because of outstanding bills with suppliers. Payments of VAT and PAYE/NI might be consistently late.

Not all warning signs are financial. A business is in distress if the time is spent fire-fighting one problem after another, if phone calls from creditors are being ignored and if stress levels are high. The absence of forward planning and a continued hope that the next big sale will solve the current crisis are also indicators that all is not well.

Insolvency is confirmed when one or more creditors are forced to take legal action to recover debts. At this point it should be clear to both those in the business and outside that there are serious cash flow problems.

Even businesses that are fundamentally sound and profitable are not immune from the risk of becoming insolvent, particularly if they are reliant on a small number of customers who are or become slow payers.

Insolvency Recovery – The Importance of Prompt Action

If those responsible for managing a business believe it is insolvent, or at serious risk of becoming insolvent, they must act quickly. If they don’t, the directors can be accused of wrongful trading and failing to maximise the interests of creditors, which can lead to personal liability if proven. Sole traders may become bankrupt.

It’s important to take advice from business turnaround specialists or insolvency practitioners. They have the depth of knowledge, based on prior experience, to help determine the way forward.

Without the right advice it’s too easy for businesses or individuals to take the wrong path though insolvency. There are a number of different routes, each of which has its own implications.

For example, an individual or company voluntary agreement with creditors allows a viable business the strong possibility of survival and a measure of protection for creditors. But it is not appropriate in all circumstances and other choices, such as administration or voluntary liquidation, may need to be considered.

Surviving Insolvency

Just because a business is insolvent doesn’t mean it’s time is up. Creditors usually prefer a company to survive because they’re more likely to see all or most of their money. But it will be hard going for a while.

Restructuring, refinancing, a sale of some of the business or some assets – all of these are possible ways forward, perhaps as part of a formal insolvency arrangement. Discovering new ways to improve cash flow, such as invoice discounting, factoring or sale and lease back of assets are other possibilities.

Touch Financial have helped thousands of organisations with cash flow solutions. Our team of experts are no strangers to the challenges faced by businesses today – we’ve got decades of experience in this field.

We don’t offer our customers a pre-packaged menu of cash flow products that may or may not help. We take the time to sit down with you, listen to your issues and together we put together a tailor-made solution. We’re interested in your stability and survival, because that benefits both of us.

If you’re concerned about the possible effects on insolvency on your business, or if you’re facing cash flow pressures, why not make contact with us for a no-obligation consultation? At worst it will take up a few minutes of your time, but we’re confident that we can bring substantial value to your organisation.

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