Breeze&Wyles Fact Sheet 5 - Spotting the signs of Insolvency

There are steps you can take as a business, to “spot” the signs of insolvency. This is important for two reasons;

  1. If you continue to supply goods or services to a business that you fear might be facing insolvency, it will allow you the opportunity to re-consider your terms of supply. For example, you might decide only to supply goods or services where you have received full payment on account;
  2. If there are outstanding invoices, it might encourage you to be more proactive in your chasing of this debtor, or if you have real concerns that the customer is already insolvent, to undertake further investigations regarding their financial position before issuing Court proceedings.

What should you look out for?

  1. You should regularly look at your client’s account and consider whether there are any anomalies on the same. Examples of anomalies that might be an example of a poor financial position might include;
    1. The situation where your customer has ordered a greater volume of stock on credit however, is taking longer and longer to pay outstanding invoices?
    2. The average number of days for payment of each invoice is becoming greater, without good reason;
    3. There is a greater sum outstanding on the account, than is normally owed and this is without good reason;
    4. Your customer has made one, or numerous requests for an extension of your credit facilities.
  1. Where your sales staff are in regular contact with your customer, they are often the first to realise that “something might be wrong”. For example, staff of your customer might make passing comments regarding their business or finances, or your sales staff might become aware of redundancies and cost saving exercises being adopted by your customer. Whilst this might not be an indication of insolvency per se, this combined with other factors (e.g. an increase in the average number of days for payment of each invoice), might cause you to question their financial status.                   
  1. If a Company has made promises to pay, but failed to adhere to the agreed payment terms, this may well be due to financial difficulties which could well lead to insolvency. In this scenario, and where you are continuing to supply goods or services, it would be wise to withdraw all credit facilities or to vary your current terms of trading – for example, by demanding a director’s personal guarantee in writing before you make a further supply.
  1. If your customer has become difficult to contact suddenly, and this is without good reason, this might be a sign of difficulties – particularly where you are contacting your customer regarding unpaid invoices.

What should you do if you believe your customer is facing financial difficulties?

  1. If your customer appears to be “juggling debts”, you will need to take a view regarding whether to a) simply wait to see if your debtor ends up paying you or b) take a more pro-active approach in an attempt to get “pushed to the front of the creditors queue”.
  2. If you are minded to take a proactive approach, you will need to continue to apply pressure to your debtor by exhausting your internal credit control function in a timely manner and in the event that this does not result in payment, instruct Solicitors to pursue the debt promptly. By issuing proceedings and securing Judgment, you will have the option to enforce Judgment, for example by instructing High Court Enforcement Officers to repossess any assets that the customer has.

To receive further fact sheets or for further information about our commercial debt recovery service, please contact Rita Wright of Breeze and Wyles Solicitors Ltd on 01992 558411 or rita.wright@breezeandwyles.co.uk

 
 
 
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