Spotting the early warning signs of insolvency

Identify potential insolvency issues sooner and you may avert actual insolvency later


At Lines Henry, we understand that it’s not always easy to spot when your business first sets foot on that slippery slope towards insolvency. However, spotting the early warning signs can help you identify the wrong path before you start down it, or allow you to change direction if you’ve already starting to slide.

With this in mind, we consider some of the signs which if spotted, should prompt you to seek help.


Your company owes more than it owns

If every asset on your business balance sheet when added together amounts to less than what your business owes, then your business is insolvent as far as your balance sheet is concerned. This needn’t always mean business closure, but shouldn’t be allowed to continue. Action is needed to reduce liabilities and increase revenue. With a sound strategy, you may well be able to trade yourself back into solvency.


Maximum use of credit facilities

Being able to secure funds via credit is sometimes necessary, however, if your business is constantly borrowing right up to the maximum allowed by its financers, then that can be a sign that something you’re doing is unsustainable. If the Directors are having to assist via their own personal credit facilities, then change is necessary.


Cashflow issues and Late payment of invoices

If you find yourself waiting right up to the last minute and beyond before paying your creditors or waiting for ‘final demand letters’ before remitting, then that’s a concern. Suppliers might be understanding if a cheque goes missing in the post, or if human error leads to payment terms being exceeded, but repeated late payment of invoices may lead to credit facilities being reduced or withdrawn. You could end up with late payment charges and your suppliers may refuse your orders. In extreme circumstances, they may take legal action against you. If you’re already over-reliant on existing credit terms then this will make your situation far worse.


Legal difficulties and existential threats to your business

Your suppliers may not be the only ones seeking action against you. Owing sufficient funds can lead to creditors attempting to recover their money by forcing your business to pay via a county court judgement or by forcing your business to close via winding up petition or similar. If you’re finding yourself having to deal with court letters and bailiffs, then things are getting serious. These are red flags and can’t be ignored, otherwise, your business may well be closed around you whether you consent or not.


The sooner you act, the easier it will be

If you spot any of the above signs, the absolute worst thing you can do is nothing. Financial difficulties rarely go away by themselves. Seeking assistance doesn’t mean accepting the inevitable though, it just means the burden is shared with someone accustomed to the weight. A burden which might already be feeling hard to carry on your own. At Lines Henry, we specialise in assisting businesses in financial difficulty, we can also help you avert that difficulty and recover from it.

If you’re struggling, we can help. Call us and feel better.