Potential Bankrupts – 3 Red Flags

The figures released not long ago revealed that nearly 45 companies went bankrupt every day when the credit crisis hit the markets. The Insolvency Service informed that during the first months of 2011 the number of liquidated companies grew up by 2% as compared to the same period a year earlier. While some companies are forced into liquidation, others are struggling through the recession. The complicated financial situation led to an increased number of calls for lending companies to grant more credits. As a result, lenders have to toughen their data verification practices to avoid agreements with dim perspectives. That’s when credit information comes in handy. Thorough credit check reports can help spot a company balancing on the brink of bankruptcy.

Red flag No. 1: Operational problems

Operational problems experienced by potential borrowers are one of the earliest warning signals of bankruptcy. High employee turnover, changes in senior management or among top executives should speak volumes to lenders. Changes in suppliers, problems with product quality and bad debts can complete the picture. Fortunately, most of these factors are reflected in thorough credit check and director reports. Credit check reports provide information on a great range of issues from statuary details to company growth rates. Director reports are centred around company key managers and include personal details, live directorships, directorships of dissolved companies, directorships of companies with insolvency proceedings, resigned directorships.

Red flag No. 2: Managerial issues

Good managerial skills account for a great part of company success. Insufficient managerial skills, decision making process based on individual opinions, creativity and marketing problems are not indicators of good performers. Credit reference agencies collect the latest available information from reliable institutions (Companies House, the Irish CRO, the London and Edinburg Gazette and Registries Trust, to name but a few) to reflect how a particular company has been performing over a certain period of time. It can help lenders take the right decision when it comes to signing or turning down new credit agreements.

Red flag No. 3: Financial indicators

In the business world figures can say more than a thousand words. Recurring financial loss, slow sales, growing debts and reduced cash flows are obvious red flags even to non-economists.

Fortunately, this information is covered in detail by credit check specialists. Typical credit check reports consist of the following sections: statuary information, directory information, risk information, company ownership, shareholders, profit and loss accounts, balance sheets, cash flows, account notes, interims, ratios, growth rates, etc. Reports are compiled in accordance with strict procedures of data analysis and can boast of the highest accuracy.

Nowadays information provided by potential borrowers can no longer be the key barometer of their successful performance. Company financial health is reflected by a great number of factors most of which are covered in credit check and director reports.

Sources:

http://www.telegraph.co.uk/finance/personalfinance/7931522/Dozens-of-companies-going-bankrupt-every-day-new-figures-show.html

http://www.guardian.co.uk/business/2011/may/06/more-uk-companies-going-bust