1 June 2004

Andrew Andronikou, a partner in the Turnaround and Recovery Department at the London office, provides a checklist of easily recognised symptoms that warn prudent observers that a serious business ailment could be just around the corner.

Whether you are concerned about the health of your business or that of a customer or client, many of the early-warning signs of financial difficulty are the same. These are typical signs that a business facing a potentially damaging financial crisis. It may have one or more of these symptoms:

• Deteriorating debtor collections
• Increasing Work-in-Progress value that is not being billed promptly
• Cash at bank is reducing or the overdraft is steadily increasing
• Rising stock levels with static or deteriorating sales
• Slow or late payment of suppliers' invoices
• Clearing debts by lump-sum payments on account
• Increasingly making payment by post-dated cheque
• Delaying payment of old invoices until a new order needs delivering
• Using spurious disputes as an excuse to delay payment of suppliers
• Receiving an increasing number of final demands and writs from suppliers
• Mounting an ever-widening search for new suppliers who will make more credit available
• Escalating VAT and PAYE arrears
• Receiving a statutory demand for payment

If any of these events occur in your business or that of a customer or client, you should seek urgent professional advice from an accountant or licensed insolvency practitioner. If advice is taken early enough, it may still be possible to save your business or avoid the damaging impact of a bad debt.

As a director you could also avoid the possibility of being forced to personally accept the liabilities and legal consequences of allowing your company to continue to trade without the reasonable prospect of avoiding insolvency.

Andrew Andronikou