Insolvent meaning in business is a state of financial distress when the company lacks the cash to pay its bills, including supplier invoices, rent, loan payments, credit card debts and employee wages. This can be due to a variety of reasons, from poor cash management to a reduction in the business’s revenue stream or increased expenses. It can also be a result of bad investments or ill-advised acquisitions.

The good news is that insolvency doesn’t have to mean bankruptcy for a business, which has a negative impact on the company’s credit scores and can lead to its assets being liquidated. Instead, insolvency can be averted by making changes and taking steps to improve the business’s cash flow.

Grasping the Concept of Insolvency in UK Business Operations

There are two types of insolvency: cash-flow insolvency and balance-sheet insolvency. The former involves not having enough accessible cash to pay debts when they come due; the latter is a matter of listing all the company’s assets (both short- and long-term) in one column and all its prospective and contingent liabilities in another. If the value of the assets is less than the total value of the debts, the company is insolvent.

While many companies fall into this category, it doesn’t always have to lead to legal proceedings or bankruptcy. A company can restructure its debt and make other changes to improve its cash flow to avoid insolvency, often with the help of professional assistance. This is where a trusted debt adviser can help. Find one for free by completing this form.