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Do you know if your client is facing cash flow issues?

2018 has proved a substantial challenge for many various industries. The risk of insolvency is ever-present for many, and the total number of insolvencies has increased in 2018 by over 12% since 2017. Similarly, the knock-on effects of clients facing company insolvency can prove potentially devastating. According to a recent report by R3 – investigating the pattern of company insolvency across a particular industry – over a quarter of all UK businesses have suffered financial difficulties due to the insolvency of a client.

Business Rescue Expert, a leading insolvency practitioner firm in the UK, are sharing the early signs for spotting a client in financial difficulties. In cases such as these, it’s important to act fast.

Communication is poor or not at all

If communication, which was once strong between you and your client, begins to fall or you, perhaps, can’t get hold of them – something is not right. A lack of communication is a tell-tale sign that the company may be facing difficulties. If you do get hold of someone from the company, note their responses and any recent changes into how they deal with your business. We suggest attempting to sit down and discuss any issues to satisfy both you and their company.

It’s also important to note that invoice disputes could be a result of the above. Disputing invoices can provide your clients with breathing space, suggesting they may be looking to adjust their cash flow. If you believe they have no reason to dispute their invoice and are not responding to communications, we suggest seeking immediate advice.

Damage to reputation

If your client is beginning to lose the trust of their customers and is suffering reputational damage, alarm bells should be ringing. A good reputation is critical to surviving in business – especially in a hyper-competitive industry. Often, a significant loss of reputation precedes an insolvency procedure, as was the case with the Carillion liquidation.

Rebrands

Rebranding is not, generally, a substantial cause for concern. However, if one of your clients regularly relaunches and rebrands their business, you must ask yourself why. Is this rebrand just plastering over the cracks that led them to close in the first place? It’s also important to note what measures were put in place for the rebrand. If they are attempting to rebrand, without a new source of income, it’s more than likely the client will face the very same financial issues they suffered before.

Low staff morale

If there is any substantial change in business structure, it is, typically, the employees who will get a feel for the changes. If there has been a significant change in staff morale recently, or the company is experiencing a high turnaround of staff – you need to consider all is not well with your clients. If your client doesn’t appear to look after their workforce, it’s unlikely they will prioritise your business.

Senior staff resignations

If senior staff are leaving, or your client is experiencing a large number of resignations, you must seek advice. Employees leaving the company – particularly senior staff – suggests the business is, currently, in financial distress.

If you have noticed any of these signs and believe something is not quite right with your client, you can use Companies House for more information. You can discover whether any senior resignations have occurred, as well as obtain statutory and annual reports to get a feel for their cash flow.

Sources:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/729810/Insolvency_Statistics_Commentary_-_Q2_2018.pdf