As revealed in our last blog, there are certain warning signs which might indicate that a business will soon struggle to meet their financial obligations. Read on to find out about the last five of the top ten warning signs.
6. Sales are decreasing
If trading has been reducing over a period of time, it may mean a company needs to free up some cash to promote its product and/or service, or the company needs to diversify.
Financial advice should be sought to determine the company’s place within the market and identify its strengths, weaknesses, opportunities and threats and to develop a plan for the future.
7. Unfunded superannuation
When businesses have been utilising the funds earmarked for employee superannuation contributions, in order to continue trading. Superannuation payments are to be remitted quarterly and are required to be paid within the month after the end of each quarter. In the event the funds are not paid to the respective super funds within the specified timeframe these amounts fall due as a debt due to the Australian Taxation Office, under the Superannuation Guarantee Act. In addition to the debt due, penalties and interest are applied.
8. Excessive reliance on related parties
Without any formal loan agreement and/or repayment plan, Companies have been borrowing funds from related entities and/or family members. In the event the Company is wound up, these debts will rank equally with all other unsecured creditors and if insufficient assets are realised, may not receive any dividend.
9. Low stock turnover
When a company’s stock is not moving and the majority of stock on hand is extremely old and in some cases, obsolete. This will affect the value of this asset that Companies have recorded on the balance sheet and after adjustment of the stock value, a negative balance sheet position may result.
10. High accounts receivable
The debtors of the Company are just not paying and the Company does not have an accurate figure on the total amounts owed or the collectability of those receivables.
A company may need to introduce a more effective debt collection process going forward. Further, an increasing number of SME’s are utilising invoice discounting or other forms of cash flow financing to ensure continuity of cash flow and to streamline the debt collection function.
If any of the listed warning signs appear, financial advice should be sought immediately to make use of any restructuring option still available.
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 agencies in Sydney, Melbourne and Brisbane we have the east coast covered.