How Can You Reduce The Insolvency Risk of A Company?

At times, companies in trouble require assistance to take appropriate actions as soon as it can involve a high risk of insolvency. Not taking timely action can result in a significant loss that might not be easy to catch up. You can minimize your risk exposure if you follow tested business strategies by hiring the right company for insolvency services. This article will help in understanding how to reduce the insolvency risk of your business. 

How is insolvency defined for a company?

Practically, any business struggling with maintaining decent cash flow and piling up debts is close to insolvency. However, a company’s insolvency is usually defined from an accounting perspective when a company can not pay dues to the lenders timely, or its liability exceeds the net worth of assets.

What triggers insolvency risks for businesses in the UK?

Many small businesses rely on a few key customers. One of the factors that lead to the insolvency of a company is the financial struggle faced by these key customers. It can create cash flow issues leading to an immediate crisis and failure of the business. 

Cash flow can be improved by:

• Generating efficient invoices

• Sending payment reminders to customers

• Appropriate invoice financing

• Avoiding the purchase of extra stock items

• Tracking cash-flow and maintaining records

You can employ some necessary checks to improve the cash flow of your business and reduce its chances of becoming insolvent. 

Top 3 tips to reduce your company’s risk of turning insolvent

1. Review the credit limits regularly:

Keep a check on the credit limits you provide to your customers. Many companies offer higher credit limits to their long term customers, eventually leading to a point when they default on a big payment. So, make sure that these limits do not allow an ability to make a considerable dent on your business finances at any point.

2. Keep checking the financial health of your customers:

You need to ensure that your customer can pay the bills for the services they avail from your company, mainly when they are operating a business with high success uncertainty or heavy competition.

3. Try invoice financing and retention of title clauses:

By having invoice financing, you can get a portion of the invoice payout up front and help you protect your business from an insolvent customer. Further, by mentioning the retention of title clauses in your customer contract terms, you can recover products if you don’t get paid.

Conclusion:

Insolvency can turn out to be a problematic situation for businesses. At Company Insolvency Services, we help our clients achieve the best outcomes at affordable service charges. We are providing support to the companies during these challenging times with services tailored to their requirements.