As the economy continues to recover, firms are advised to keep a close eye on cashflow

Although the economy is recovering, the most recent insolvency statistics revealed over 4,000 businesses were forced into liquidation in the first quarter of 2011.

However, a number of these firms could have potentially been saved by taking a few precautionary steps, says Martin Walmsley, head of debtor insurance at Lloyds TSB Commercial Finance:

“Many small companies rely on accountants to spot the warning signs which may eventually lead to insolvency. However, regular internal meetings and due diligence over the business’ and customer’s accounts, could reveal the early indicators that a firm is in trouble.

“Cashflow is arguably the most valuable indicator for a business, regardless of size and sector, and strained liquidity can be a tell-tale sign of wider problems in a firm.

“Management teams should not be preoccupied by turnover, more the amount of cash available in the company to pay overheads, and its overall profitability.

“If your firm owes more than £750 to a creditor, a written demand can be made for full payment of the debt. If this can not be paid or secured in 21 days, the creditor can present a petition to court for a bankruptcy or winding-up order.

“A strategic cashflow forecast can help businesses plan monthly outgoings. For firms struggling with delayed payments as a result of dealing with large customers or overseas clients, an invoice finance facility can bridge this gap and ensure companies are in the strongest possible position to capitalise on growth opportunities. 

“Businesses should also monitor their clients carefully, both before embarking on a trading relationship and during it. A late payment or bankrupt debtor can have a knock-on effect and, in the worst-case scenario, cause insolvency.

“A credit insurance policy, like our debtor insurance product, protects a company’s cashflow and is increasingly being seen as an essential facility for firms wishing to actively pursue expansion, or those which operate in sectors hit harder by the recession, such as construction.

“Through due diligence and careful planning, it is possible for firms to be healthy and grow in this recovering economic climate, without the fear of customer insolvency.”