What is Wrong with My Receivables?

receivablesReceivables are defined as amounts owed to a business and are therefore recorded and classified as asset accounts. Although it lies within the asset side of the accounting equation, it does not guarantee that their presence is all for good. At times, even they can bring in dilemmas and significant damage to the business. How?

  • Collection is taking too long.

Receivables are debts owed to the company primarily by its customers but may also be from other parties. This is what makes it an asset account. However, the very challenge that comes with them is the fact that they are not immediately recognizable and are not liquid per se. They are not cash and thus may not be used to pay for the various aspects of trade and operation.

Collection is an integral part of receivables and a solid system must be present to ensure that everything is timely and on schedule. Still, there will be cases when the recognition of such collections is going to take long. Depending on the credit terms, it can take a few weeks, to several months or even years to garner full payment. This opens up doors for liquidity and cash flow issues.

  • Bad debts are on the rise.

Another risk that companies tackle in the face of having receivables is the possibility of bad debts. This is when debtors or owing parties fail to pay at all. Delays are by themselves already detrimental so how much more if there is a complete default? Depending on certain situations, the company may seek for charges against the defaulting party but these come with costs to the business’ part too. Furthermore, these bad debts may be written off and recorded as losses. Yikes!

  • Cash levels are dwindling.

Another issue that receivables are likely to have is their unattractive effect on cash flow. Sales and assets may look fine but cash doesn’t. Working capital is strained and there isn’t enough available and immediately usable resources to use on corporate expenses. Again, there lies a liquidity issue and when taken out of hand may pave the way for an insolvency scenario, being one of the worst aftermaths that a receivable problem can bring about.

How does one avoid all these? I would suggest the proper use, facilitation and planning of receivables throughout every fiscal year.

How to React When Faced with Winding Up Petitions

winding-up-petitionWinding up petitions can feel like a deathblow. They’re pretty fatal, business-wise, and it’s something that no entrepreneur would wish for. After all, who wants creditors to be breathing down your neck and working to bring your company to a full on forced liquidation?

But in the event that such a situation rises to the surface and becomes inevitable, it is important to hold your ground and act wisely and fast. Your reaction towards it will make or break the company. It can either ease out the trouble or hasten the mess. To go for the former, here is how to react when business is faced with winding up petitions.

  • Take a Breath – It’s easy to panic in dire cases like this but doing so will do absolutely no good. If any, it’ll only waste your precious time and make your head go whack. So take a breath and compose yourself. You need to face this matter with a leveled head. There’s no time to go crazy.
  • Rally Up Your Team – This is not a one-man job. You’ll definitely need your team and most especially an insolvency expert and practitioner to help you assess the situation and hopefully walk out of the situation unscathed, where possible.
  • Bring Out the Records – It’s about time to check up on your financials and be realistic. There’s no need to dilly-dally and deny an insolvency problem should it be present.
  • Open Communication Lines – Don’t hide from your creditors or else they’ll get all the more flared up. Be cooperative and open communication lines. It is important to hear out both parties. You never know, doing so can even open up chances for a better solution other than a forced liquidation.
  • Run Through Options – Depending on your unique scenario, certain alternatives to the problem can be had. It is important to carefully but quickly assess all these to find a solution that can bring out the most good and the least losses.
  • Act Fast – Once a winding up petition has been served to court, the company is only given seven days before an order or decision is released. It is only within such time span where entrepreneurs can try to make creditors change their mind and arrange for an agreement or contest the value of the claims. Time is obviously of the essence so there should be no procrastinating.

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Five Causes of a Members Voluntary Liquidation

members-liqiuidationA Members Voluntary Liquidation (MVL) is a procedure that seeks to close operations and wind up the affairs of a viable and solvent entity. It is one that requires the business to submit a declaration of solvency to prove capacity to pay creditors in full. Now you might wonder why any company would seek the said procedure if it is first and foremost operational and is perfectly capable of fulfilling obligations. It’s possible. Financially troubled entities aren’t the only ones that liquidate. What are the reasons behind an MVL then?

#1: Expiration or Achievement of Purpose

Organizations, both for profit and not for profit, are built on a purpose. These can be seen in the organization’s mission and vision statements and its objectives. When the reason behind the establishment of the business expires or is achieved, it can close shop and redistribute its assets to owners even if it is solvent.

#2: Loss and Risk Aversion

It would be better to pack up your bags when you still have something to earn than do so with staggering losses. This is the logic behind this reason. Should a company believe that an imminent threat or danger brings in significant losses to the business that could lead to its insolvency, it may consider for an MVL procedure.

#3: Loss of a Significant Member to the Organization

If a vital member of the organization whose knowledge, skill and expertise is so crucial to the operations and profitability of a business entity retires, resigns or dies, this can create serious threats to the company. To avoid the consequences of such occurrence, liquidation becomes a thing.

#4: Retirement Purposes

Of all the items in this list, this cause is by far the most common. When owners and/or directors wish to retire and enjoy the fruits of their hard work, they will first have to undergo a Members Voluntary Liquidation. This is because the company is a separate juridical entity and its assets are independent from its owners. To transfer such assets from the former to the latter, the former has to be wound up first.

#5: Withdrawal for Reinvestment

A Members Voluntary Liquidation or MVL may also be called for when owners wish to bring their money somewhere and reinvest it in another venture. This can be done especially when a better opportunity lies ahead and such returns prove to be more profitable.

Winding Up Petition Antidotes: How to Avoid It

winding up petitionA 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.

When is a Member’s Voluntary Liquidation Forbidden

There are two ways of deliberately winding up operations and liquidating business assets. The first is referred to as a Creditors Voluntary Liquidation (CVL) while the latter is called a Members Voluntary Liquidation (MVL). In this article we’ll discuss about the latter, what instances call for it and when taking it is not allowed.

As mentioned earlier, an MVL is a voluntary move done by an entity who wishes to cease trading and redistribute its assets to stakeholders. It is passed by the owners, members or directors themselves for reasons that include the following:

  • creditors voluntary liquidationWish for Retirement – When a majority decision has been decided by the board or the owners, they can opt to close the business for purposes of their retirement.
  • Lack of Successor – A lack of heir or successor for an entity can also cause it to undergo an MVL for purposes of redistribution.
  • Accomplishment of Purpose – Once the organization has fulfilled all its objectives and its presence is not anymore deemed profitable and viable after such completion, it will also be wound up before losses come up.
  • Loss of Vital Member – The retirement, resignation or death of a very important member of the organization whose presence greatly impacts operations and profitability can be detrimental. As a measure to prevent terrible consequences, the company may prefer to wind up. This of course involves careful analysis and examination of the situation.
  • Precautionary Measure – Should impending circumstances bring about consequences that could prove to create a large amount of losses to the entity, an MVL may be taken in order to avoid it and cease when profits and assets are still available for distribution.

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A Members Voluntary Liquidation will call for an appointment of a liquidator to oversee the process of winding up which includes the sale of all assets and the distribution to creditors and shareholders. Unlike a CVL, this procedure ensures fulfillment of all obligations to creditors before any is given to owners and shareholders.

It is therefore forbidden for an insolvent company or one that is drowning in debt to apply for a Members Voluntary Liquidation. As a requirement, the entity must first declare and prove its capacity to fulfill its maturing obligations within a span of twelve months otherwise the procedure will be turned into a CVL. It should not be in any way used as a means to escape obligations.

 

Tips to Keep Corporate Solvency

Attractive businessman showing happiness in successFor a business to grow and thrive, it has to be both solvent and liquid. Today we’ll focus on the former, solvency, and the AABRS team is here to help all of us on how to achieve and maintain that.

But first things first, allow us to define what solvency is. Simply put, it is an entity’s ability to meet its financial obligations to its creditors as they mature or become due. This is for at least a time period of twelve months. If evidence shows otherwise, insolvency becomes a thing and this poses a lot of threat to your business. You can end up selling it or worse wind it up if you could not find a feasible solution. So back to the topic at hand, how does a company keep itself on the solvency platform?

  • Maintain an accounting of your transactions. – Doing so helps you keep track of things like expenses, sales, income, liabilities, assets and more. Your financials is a window to your company’s financial state. If you do not have a great accounting system and team then your reports will be messed up leading to wrong interpretations and eventually bad decisions.
  • Have an effective credit management system. – Credit comes in many forms from bank loans to mortgages to employee wages to taxes and more. An organization has to have a team who will look into the credit side of things, keep track of it and ensure that nothing goes bad. This way, you do not miss on payments and you avoid unnecessarily adding up to your credit.
  • Keep your resources properly allocated. – Wastage often leads to shortage which then leads to endless borrowings, payment defaults and credit applications and before you know it, you’re too insolvent to recover. This is why properly allocating and keeping a budget of your financial resources is a must.
  • Make it a point to save and invest. – Entrepreneurs need to acknowledge the value and importance of saving. If you spend and spend and spend then you could be risking it all. You need to have a safety net. Saving and investing will be that net.
  • Keep your credit score healthy. – A solvent entity is creditworthy according to the AABRS team. To achieve that, you must pay all your dues on time. It is of no secret that liabilities are present even to the most successful conglomerates in the world. It’s a matter of proper management.

What is a Winding Up Petition and What Can it Do

winding-up-petition-londonWhen a business is faced with a winding up petition, consider this as one of their worst nightmares. You would not want to receive anything like it. Think about having your biggest investor visit the company on a morning where you are suffering a massive hangover from last night’s party, a runny nose, awful cough and a funny tummy. Add in to that the fact that your jeans ripped by the back and you spilled coffee on your new laptop where your only copy of files is stored. Does it sound pretty bad? Sure it does.

A winding up petition is a forced liquidation brought about by disgruntled creditors who have a significant stake on the company. This is oftentimes their last resort after having exhausted all other means of collection. It brings about cessation of business and the total liquidation of the entity in question. All assets will have to be distributed to all creditors and if there is any left after paying them in full then such will be distributed to shareholders. If the total proceeds of the liquidation do not suffice to cover all the debt then creditors will receive an amount proportional to their interests and the remaining are to be written off.

It is also important to take note here that even if creditors file the petition, only an official order released by court will get the ball rolling. At the same time, the initial expenses in terms of filing will be shouldered by the creditors themselves. This is the reason why it is often their last resort and taken only if their returns prove to be higher than their expenses.

A winding up petition can bring numerous effects to any entity and that includes the following:

  1. Freezing of Assets and Bank Accounts

Once the court order has been released, one of the first effects to be felt would be the freezing of all company bank accounts. Assets will be frozen too and thus cannot be sold in any way. This aims to protect creditors and prevent the entity from withdrawing their assets.

  1. Possibility of Personal Liability for Directors

If directors are proven to have breached their responsibility and have continued to trade with the knowledge of insolvency, they will be held liable to creditors up to their personal assets.

  1. Tarnished Brand Name and Image

 A winding up petition also hangs a heavy chain on your company’s brand and image as well as your credit worthiness in the future.

AABRS.COM’s Warning Signs to Insolvency

insolvencyInsolvency has been defined as the state of not being able to fulfill one’s obligations as they mature or become due. It has to be acted upon as quickly as possible as it can result to worse consequences such as bankruptcy. We all know for a fact that no entrepreneur would wish that to befall upon their beloved businesses and so AABRS.COM is here to help you avoid that with the following warning signs to insolvency.

Daily Payment Demands – When creditors call up your office on a daily basis asking for payments, this could be a sign of a looming insolvency. They wouldn’t be pestering by the telephone endlessly every single day unless you’ve repeatedly missed payments.

Delayed or Missed Tax Liabilities – There is no valid reason as to why a company will purposefully delay or miss their tax payments. Human error is possible but is rarely the case. If this happens, it could be that the company is short of liquid funds.

Dividend Holidays – Dividends are profits paid pro rata to stockholders. A healthy and profitable company has payouts more often than those that don’t. Dividend holidays on the other hand pertain to the total absence of any payout.

Legal Threats – When your creditors send out threats of a winding up petition at court, this could be a result of repeatedly missing out on your obligations.

Long Outstanding Payables – The longer and more aged your payables are, the bigger your interests and penalties could be. It can also be the sign of inadequacy when it comes to repaying your obligations as they mature.

Poor Cash Flow – Cash outflows outweighing inflows is one of the major signs of insolvency. An entity will eventually drain out if it spends more than what it acquires.

Refusal of New Credit Application – Creditors and financial providers look into solvency and financial status of fund applications. If you are denied of one then you must check into your financial statements for yourself.

Refusal to Extend Credit Deadlines – Many creditors are willing to give extensions to their loyal and trusted patrons. This only ends when the patron has repeatedly breached payment schedules. So the next time that you ask for an extension, you will most likely be denied of it.

Stock Order Problems – Additionally, when suppliers and vendors decline your purchase on credit, this could mean that the relationship between the two has been tarnished in some way. One of which is missed payments due to fund shortages.

Trade Insurance – Lastly, AABRS.COM reminds entities that should your regular suppliers ask you for a trade insurance which they haven’t asked before, it can be a sign of skepticism as to your ability to fulfill the obligation timely.