What are the early warning signs of insolvency?

There are several red flags that may indicate a company is heading toward insolvency. Persistent cashflow shortages, where expenses consistently outstrip income, are one of the clearest signals. Other signs include regularly missing HMRC deadlines for VAT or PAYE payments, suppliers tightening credit terms, and banks refusing to extend overdraft facilities. Directors may also notice that the business is relying heavily on short-term loans to cover operating costs or is constantly juggling creditor payments to keep afloat. Another common warning sign is deteriorating relationships with creditors, where late payment has become the norm and legal threats start to appear. Finally, if management accounts show that liabilities outweigh assets, or if sales decline without the ability to reduce fixed costs, insolvency may be inevitable. Identifying these signs early gives directors the best chance to seek professional help and implement recovery measures before the situation escalates beyond repair.