Spotting the Signals Before Insolvency
FEB 22 2022 08:14:27
SICA (Sporting Industry Credit Association) was originally founded in 1980 by ski and outdoor manufacturers and distributors with the belief that there was a need for a credit association where members could exchange credit information that would benefit all.
Today, over 40 years later, SICA is involved in all sectors of Sporting Goods and Footwear across North America.
We have evolved with the most advanced credit tools to assist credit managers in their decision-making process.
Below are some observations SICA has witnessed over the years to help our members spot the warning signs of a company’s potential insolvency before it’s too late.
Insolvency Warning Signs
There are several ways you can spot the signals of a business on the verge of insolvency before it is too late.
1.Is the company having trouble paying its bills?
· A company that lacks sufficient cash flow to meet its current needs may ask for or delay payment.
· Has their payment habits with your company recently deteriorated?
· Are you receiving substantial increases in orders for your goods because it could be that other suppliers are refusing them credit?
· Do you see a deterioration or significant variance in their historical payment trend with other suppliers? SICA’s “Sicadex Score” and “API Report” can assist you in spotting these trends.
2.Has there been a recent management change or excessive employee turnover?
· If the business is experiencing excessive staff turnover it may be due to issues with meeting payroll or that the ship is going down, either way it can be a sign of cash flow problems.
3.Check for liens on a company’s assets.
· Security searches will reveal a company’s secured creditors. It maybe be that the owners recently secured themselves.
· Often prior to an insolvency, an owner will take out security on the assets of the business to protect their investment should they need to file for court protection or bankruptcy.
4. Is the company selling off its assets?
· The selling of assets is something to keep an eye on. If the company is having huge clear-out sales or offering deep discounts, it could be a sign that they are doing so in order to alleviate a large amount of debt, which most likely could be a secured debt.
5. What does the store look like?
· Has your sales rep been in the store to do an evaluation of inventory levels, traffic in the store, product presentation? A store in shambles are tell tale signs that often lead to an insolvency.
These points are not meant to be the be-all and end-all of insolvency warning signs, but it is a good place to start. If a company seems to have one or more of the above signals, it is good practice to weigh the risks of dealing with them.
It is important to stay connected with your industry group and SICA’s KPI’s in order to maximize your company’s sales while balancing the risk levels.