What are early warning signs?

Early warning signs of financial distress are incredibly valuable; by knowing what to look out for, a business is afforded more time to be able to react to any problems. Unless the business takes action to address its financial difficulties, problems quickly accelerate. By the time your business is unable to pay its debts, your options are often very limited.

The Bank understands that every business may encounter difficulties and you should always engage in open, honest and early communication with our Lending & Arrears Management Team or your Relationship Manager about any difficulties that you face.

Below are some early warning signs that your business may be experiencing financial difficulty.

  • Performance issues - Trading business is in decline and profits are reducing
  • Negative cashflow – Whilst there may be good reasons for negative cashflow, it is important to ensure that you understand the cause of this.
  • Reducing profitability/increasing losses – There may be a number of reasons for reductions in profit, but this could relate to the cost of raw materials or overheads and therefore deterioration needs careful monitoring.
  • Adverse performance against budget  - Whilst not every business may have a formal budget, it is good practise to have some form of forecast, which should then help you foresee and manage potential problems.
  • Reduction in turnover/order book  - If a business turnover is falling this may indicate a decline in demand for its products, and it’s important to understand the reasons and take action accordingly. It’s good practice to be aware of the turnover required, to cover the costs to run your business.
  • Late or missed payments to suppliers - It is possible that missed or late payments to suppliers may be for reasons other than financial distress, for example, the company is having problems with this supplier. You should be open with us about any supplier difficulties.
  • New Projects/Acquisitions - A company may have valid reasons for wants to re-brand or develop into a new market so please discuss this with us.
  • Late or missed payments to the Bank - If you are concerned about meeting scheduled repayments, please contact us to discuss this before the repayment date.
  • Company looks for new sources of funding  - We understand that there can be a number of reasons that a company may look for new funding sources but it is important that you have open conversations with us before you look to third party finance.
  • Employees are looking to leave or management structure is changing - We understand that employees may leave for many reasons. If the management structure is changing, please discuss this with us in advance.
  • Reporting obligations are missed; Covenants are breached; Accounts are not filed on time - If you are concerned about missing reporting or other obligations under the terms of your lending with us, please contact us well in advance to discuss this with us.
  • Negative rumours in the market as to the viability of the company - This can often be self-fulfilling; with negative rumours compounding financial distress.

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