As a business owner, it is important that you are able to recognise signs that your company may be insolvent, or on the way to becoming insolvent. Here are 6 warning signs of corporate insolvency that you must look out for.
- Cash on Delivery becomes a common phrase
If you are facing corporate insolvency, then your creditors and suppliers may begin to ask for Cash on Delivery (COD). This means that you must pay them when you receive the supplied goods and services, as opposed to being trusted to be able to pay them at a later date. Insolvency can affect your credit with suppliers and ability to maintain long-term relationships with them.
- Dishonour fees, bounced cheques
If the cheques that you are sending out are bouncing, then this is a clear sign of corporate insolvency, as it shows that there are insufficient funds in your account. This also rings true for dishonour fees.
- Books and records are not updated
One of the signs of corporate insolvency is out-dated books and records. As businesses run into financial distress, directors are less likely to maintain their books, as their focus will most likely be elsewhere. It is crucial that financial records are maintained, as failure to do so, under the Corporations Act, gives way to a statutory presumption of insolvency.
- Superannuation contributions are not paid
Business directors and owners who are experiencing financial distress often use their employees’ superannuation funds to help with short-term cash flow. This is because these payments are normally paid at the end of every quarter, so it is less noticeable if they are overdue.
It is important to note that under the Director’s Penalty Notice regime, if a director is unable to pay their employees’ superannuation fees, then they may be held personally liable for them.
- Business aesthetics are not maintained
One of the first aspects of a business to be affected by corporate insolvency is its aesthetics. If your business’ physical appearance has dropped or there are signs of poor maintenance and cleaning, then this could be an indication of poor financial health.
- Legal action
The tipping point for most companies at the risk of corporate insolvency is having legal action taken against them, such as receiving a Director’s Penalty Notice or winding-up application. These can bear serious consequences, such as being made personally liable for company debts.
If you are facing corporate insolvency, then you need to take action immediately. Please contact CRS Insolvency Services for free, 24/7 expert advice on 1800 210 073.