An insolvency firm is a business that specialises in helping companies and individuals deal with financial difficulties. It may be able to help a company restructure, negotiate with creditors or even dissolve the business. These firms are regulated and have expert staff that can guide a company through the processes of bankruptcy or liquidation.
There are many reasons why a company could end up insolvent, from poor cash flow management to economic downturns. If a company is not careful, it can be overwhelmed by debts and bills or suffer the loss of major clients or contracts. Regardless of the cause, insolvency is a serious issue that requires professional intervention.
Some companies become insolvent because their products or services do not evolve to meet consumer demand, and they fail to adapt to the market. This can lead to losses, which can eventually spiral out of control. Poor cash flow management insolvency firms is also a common contributor to insolvency, as a lack of funds can result in bills not being paid on time and expenses exceeding revenues.
Another reason for insolvency is poor management, which can lead to costly mistakes and misguided investments. For example, if a company invests too much money into research and development and fails to bring it to market in a timely manner, it can quickly find itself in trouble. In addition, if a company hires unqualified staff or makes other misguided decisions, it can be financially ruinous.
Despite the rise in insolvency cases, overall business activity remains relatively resilient and well below peak levels of COVID-19 and beyond. However, the risk of a recession remains high due to inflation, soaring energy prices and supply chain disruptions.
The number of insolvency proceedings opened by the insolvency service jumped significantly between Quarter 2 (2022) and Quarter 1 (2021). The wholesale and retail trade industry accounts for around 14% of the total number of company insolvencies in England and Wales, with 802 cases registered in Q2 2022 – the highest figure recorded since Quarter 1 2012.
One way to reduce a business’s exposure to insolvency is to focus on improving its collection efforts and reducing Days Sales Outstanding (DSO). This can be achieved through effective credit management and improved collections systems, and it is also possible to work with unsecured creditors to offer payment plans that may allow a distressed company to pay back some of its debts.
It is also important to seek professional advice as soon as you realise your company is struggling financially. This will give you the best chance of preserving your company’s assets and maximise the chances of turning the business around.
Insolvency proceedings provide protection from legal action by creditors and can provide an opportunity to restructure the business in a more viable and sustainable manner, such as through renegotiating contracts or changing its business model. These restructures can be done through a variety of different methods, including company voluntary arrangements (CVAs). CVAs are legally binding agreements that an insolvent company makes with its unsecured creditors, allowing the company to pay back its debts over a period of time, usually between 2 and 5 years.