Insolvency and Factoring

Insolvency and Factoring

Business insolvency means the inability of a business to pay off its debts. There are two type of business insolvency:

  • Cash flow insolvency, this is where a business is unable to pay its debts when they are due
  • Balance sheet insolvency is when a business has negative net assets, so in other words their liabilities exceed their assets.

It is possible for a business to be ‘cash flow insolvent’ but to be ‘balance sheet solvent’ if it holds assets that it is not able to quickly convert into money, to cover its debts.

Equally a business can have negative net assets showing on its balance sheet, but it can be cash flow solvent if it has ongoing revenue to meet its debt obligations. In fact many large companies operate permanently in this state.

Being insolvent does not necessarily mean that you are bankrupt. Bankruptcy is declared only once a court of law has declared that you are insolvent, with resulting legal orders intended to resolve the insolvency.

Getting professional advice

If you think you may be insolvent or are heading towards insolvency it is a good idea to get some advice before you make any rash decisions. There are plenty of methods that can be put in place to help you become solvent.
A commercial financial specialist will be able to give you an objective view on your situations and they may offer solutions that you have never considered. They can also often identify the root cause of the problems that your business is experiencing, and help you find solutions to these problems, by helping you obtain the injection of cash that you need.

Insolvency and factoring

Factoring is a solution to insolvency, because it releases the value that is tied up in your sales ledger by borrowing against the value of your unpaid invoices. This provides you with an injection of cash that you can invest in order to pay off your debts and liabilities.

Insolvency and factoring work together perfectly because factoring is a form of lending which does not require you to offer up any security. It also does not matter to factoring lenders that you are insolvent, or have a bad credit rating. Factoring is also a much cheaper way to borrow, and is very simple and quick to set up.

The advantages of factoring include:

  • It unlocks the money that is locked in your sales ledger
  • It gives you immediate access to the funds that you have already earned
  • You get paid up to 95% of your sales invoices as soon as you raise the invoices –so if you are owed £100,000 by your customers you could get up to £95,000 within 24 hours!
  • You spend less time worrying about your cash flow
  • The service can be kept confidential
  • It is a flexible and controllable form of business finance
  • It can help you become solvent

For further advice please contact our business turnaround specialists on 0800 597 4757 or apply online using the form opposite.