Business success is commonly guaranteed if the directors keep a close eye on its performance and cash flow. As already clarified in the first series of this blog, to avoid liquidity problems key indicators must be identified early and action taken to prevent debt collection or maybe even the irrevocable situation of bankruptcy. Business insolvency does not happen overnight, and there can be early warning signs as follows:
1. Non-payment of Tax Liabilities
A Company will often forgo the payment of its tax liabilities to ensure that it has sufficient cash flow to meet its wages and critical supplier payments. This may be considered to be an effective use of cash resources in the short term, however in the long term after those tax liabilities have continued to accrue penalties and interest are then imposed. Companies should seek financial advice, as a restructure may be able to be affected and a repayment plan entered into with the ATO to avoid the issuing of any penalty notices.
2. Continuing Losses
Companies with continuing financial losses for the past 2 years should review their asset and liability position. Idle or non-performing assets may need to be sold, in order to purchase new assets that will generate income for the Company. Financial advice in the form of an investigative accountants review could also be sought, in order to determine if there are any non-value adding processes in place that could be stopped and/or that a reduction in overhead costs and employee costs could be achieved.
3. No access to credit
In the event a Company has attempted to secure new lines of credit or to extend existing lines of credit, it may be necessary to engage an investigative accountant to consider alternative arrangements to be made, in terms of repayment of debts due, to achieve some breathing space and to free up some cash in order to continue trading.
4. Outside trading terms with creditors and supply on Cash on Delivery (“COD”)
When trading terms with creditors are well outside normal trading terms, i.e. 30 – 60 days and creditors are demanding that supply is made with COD, it is time to seek some financial advice in order to get trading back on track.
5. Receiving demands and/or other legal notices
When creditors are pressing for payment in the form of final notices and issuing legal demands, it will not be long before they receive a judgement order for their debt and proceed with winding up proceedings.
Our next blog in this series will help to identify further warning signs of possible upcoming liquidity problems.
If you would like to learn more about the debt collection services we offer, contact us now. We have over 30 years of experience providing professional and discreet debt collection solutions for clients of all sizes and across all industries. With debt collection agency in Sydney, Melbourne and Brisbane we have the east coast covered.
- Key Indicators of Business Success and Warning Signs Part 1
- Key Indicators of Business Success and Warning Signs Part 3
- What is a “financial cycle” and how does it affect your business?
- Cash flow management: 5 tips to get your money back
- 5 ways you can avoid bad debt
- All You Need To Know About Garnishee Orders