Payment difficulties and a financing crisis
Your company may face payment difficulties even if its business operations are profitable. If the difficulties persist and your company cannot obtain enough money for the payments, a financing crisis may follow. You can prevent problems by actively monitoring your company’s finances and by taking corrective measures immediately.
A company’s payment difficulties often arise unexpectedly. For example, they may occur if an important customer is unable to pay its invoices on time.
A situation where you become ill may lead to payment difficulties if your company is dependent on your personal input. A momentary fall in orders may also cause temporary payment difficulties to your company.
If you are expanding your business operations too quickly, your finances do not necessarily keep pace with the growth. This may cause payment problems to your company. Payment difficulties are also possible if your company has substantial claims with long payment periods.
Even a profitable company may face temporary payment difficulties. It is usually possible to deal with the problems over time. However, if the payment difficulties persist, they may lead to a financing crisis and insolvency. In the worst case, your company may even become bankrupt.
The clearest sign of a financing crisis is that your company’s revenue does not cover the expenses and its funds decrease. As a result, your company cannot pay its bills, taxes and other payments on time.
On the verge of a financing crisis, your orders and the demand for your products may also decline. Competition for customers may get tougher and the prices may go down. The inward cash flow may no longer be at the same level as before. When other parties notice your payment difficulties, they may shorten the payment periods of their invoices and take more effective debt collection measures.
When the financing crisis progresses, your company may no longer be able to manage its liabilities in the same way as before. Your company’s ability to pay and its profitability may decline even more and the situation may become critical. Your company's collateral may also lose some of its value and getting extra funding may become difficult. You company may post a loss.
In addition, weak prospects in the entire sector may predict a financing crisis.
You company may never face a financing crisis if you always make sure that its finances are in balance.
You should actively monitor your company's accounts and make cash flow calculations on a regular basis. Also use other calculations and indicators that are relevant to the operation of your company. Watch your company's liquidity, solvency and profitability with particular care.
Make sure that your company has funds for at least three months’ payments. This allows your company to manage unexpected expenses and seasonal fluctuations in revenue.
You should constantly watch whether there are any warning signs of a general financing crisis in your company and the entire sector. React to any problems without delay. The earlier you take corrective measures, the better your company’s possibilities are to recover from the crisis or to avoid it altogether.
Advice for preventing a financing crisis is available in the Talousapu service of Enterprise Finland and in your regional business development company.
First, find out what your company’s overall financial situation really is. Look at what your company owns and how much debt it has to different parties.
Try to reduce the expenditure and increase the revenue. You should sell items in your inventory as quickly as possible. It may be necessary to make changes to prices or the product range so that you can improve profitability. If necessary, you should convert your company's assets into cash.
Ask for more time to pay your invoices, taxes and employment insurance contributions. Contact your creditors to negotiate a short break in repaying loans. You can also ask your customers to pay their invoices more quickly than usually.
Urge your employees to exchange holiday bonuses, overtime pay and performance-related bonuses for days off. You can also consider laying off employees if it is necessary in the situation.
If nothing else helps, you can file for corporate reorganisation or seek some other kind of debt arrangements.
Advice for dealing with a financing crisis is available in the Talousapu service of Enterprise Finland and in your regional business development company.