A winding up petition is by far one of the worst scenarios that any business entity will have to face. It is an outright act brought upon by corporate creditors themselves that seeks to close the company for good. It is a procedure taken upon when creditors have exhausted every other means to garner a collection of the amounts owed to them with the business’ insolvency as the main culprit. The procedure requires the expertise of insolvency practitioners like AABRS.com.
A winding up petition or a WUP for short is a fatal blow to any business organization. It can freeze all bank accounts, make any asset disposal reversible and shut down operations all while the entity does not have any say about it. It is a forced liquidation enacted by a court order. The company will have to shut down, liquidate assets and use its proceeds to pay off all debts whether it wants to or not. You are not given a choice.
Now, is there an antidote to it? Can you avoid and prevent a winding up petition or a WUP from happening? Of course you can and below are the ways how you could do so.
- Establish an effective credit management system. A WUP is brought upon by insolvency and insolvency can be a result of poor credit management. In other words, you have to make sure that there is an effective system and set of procedures in place to take care of all your liabilities ensuring that you pay on time, you have enough funds to do so, you don’t borrow beyond capacity and no wastage occurs.
- Always assign a qualified team to handle transactions. Your financials and accounting are crucial ingredients not only in keeping track of your profits but also in matters that concern your liquidity and liabilities. This makes it important to not only establish the right protocols and standards in your accounting processes and records but also to hire qualified personnel to perform such responsibilities.
- Keep your cash flows on track. Apart from being debt heavy, one of the scenarios that could lead to insolvency and a winding up petition or a WUP would have to be poor cash flows. Having high sales does not guarantee cash availability. Remember credit sales and receivables? When you have high receivables but poor turnover or where you have many bad debts, this can affect your cash inflow and create a shortage in liquid resources that’s supposed to be readily available for the entity to use. You have to perform better customer credit screening, improve your credit terms and look for means to hasten collections such as factoring.