How to protect your business from the increasing risks relating to insolvency as the government support comes to an end and the pressures of running your business increases.
There are so many ways in which the risk of insolvency can affect businesses and individuals. Unforeseen circumstances beyond your control can affect both your business and personal life.
We are already seeing an increase in companies going into liquidation and as the Winding up Petition restrictions have been lifted. Individual bankruptcies are on the rise too.
Here are a few things to take into consideration to prevent your business from becoming insolvent.
Take stock of your customers , suppliers, asset managers or other stakeholders who are at risk of insolvency as this will influence your finances.
One of the best ways to mitigate against third party insolvency risk is to be very aware to those issues before they happen. There are several things you can look out for, and these will vary depending on the business you need to scrutinise.
- Unusually high turnover of staff
- Deteriorating levels of service and poor-quality standards
- Late payment of invoices
- Delays in the delivery of goods and supplies
- Missing deadlines
- Price changes or Re-negotiating agreed terms for prices already agreed
- Changes in management
A subscription to a service which provides you with data which monitors companies for other less evident signs of insolvency, such as court claims, and even winding up petitions, can be useful and, if you use it in the right way ( no point in signing up to the subscription and then not using it ) can be very useful for checking businesses who you work with to see if they have any insolvency risks.
Dealing with insolvency issues
Of course, none of the methods above are a complete solution. There may be little that can be done if a third party is facing insolvency. However, there several points to bear in mind that may help:
- It is important to engage early with any suspected insolvency issues affecting relevant third parties that you are dealing with in your business
- Sometimes, in the case of key customers, suppliers or other stakeholders, an early discussion with them to see if there is anything that might be done to assist avoiding a formal insolvency may be commercially worthwhile.
- Act fast to review the likely impact of a formal insolvency event on your own business and consider steps that can be taken to mitigate the damage.
- If any sort of restructuring is proposed that affects you, understand the implications and your rights in relation to the process. Take advice early!
- If a formal insolvency process commences (such as a Company Voluntary Arrangement (CVA), administration, or liquidation), engage with it urgently – you may have rights that can impact the result.
The most important thing to remember, is that insolvency, and any pre-cursor to it such as a restructuring, is a highly specialist area in legal terms.
The rules and regulations that govern what is – and what is not – acceptable are complex and often subject to grey areas and interpretation.
The earlier you seek professional advice the better, so that you can protect your position, preserve value, and maximise your changes of avoiding significant damage from an insolvency event that affects your business.
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