Early warning signs of financial difficulty
A broad overview of some early warning signs that your business may be experiencing financial difficulty.
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 business 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.
Trading business is in decline and profits are reducing:
Whilst there may 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 our business management team or your Relationship Manager about your supplier difficulties.
A company may have valid reasons for wants to re-brand or develop into a new market so please discuss this with our business management team or your Relationship Manager.
Company has difficulty funding anything other than immediate debts:
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 our business management team or your Relationship Manager before you look to third party finance.
Employees are looking to leave or management structure is changing
Our business management team and Relationship Managers have a wealth of experience helping customers in financial distress and we understand that employees may leave for many reasons. It is important, especially if the management structure is changing, that you 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 our business management team or your Relationship Manager 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.
Critical cash shortage – the Company has to use all its cash to pay overdue debts to keep trading.
Suppliers terminates contracts or refuse to continue to supply
This may have an effect on the company’s ability to keep trading.
Secured creditors like the Bank demand repayment of its lending
The Bank may take formal steps to demand repayment of its debt and enforce its security.
Suppliers or other creditors like landlords take formal steps to protect their position.
Winding-up petitions are matters of public record. Any such petition will have immediate and adverse consequences on the company. Please contact our business management team or your Relationship Manager urgently.
By this point, often an insolvency process is unavoidable. You must speak to our business management team on 0345 072 5555 or your Relationship Manager as soon as possible and take independent advice as to whether you are able to continue trading. We are available from 8am to 8pm Monday to Friday and 9am to 2pm on Saturday. Directors can be personally liable if the company continues to trade whilst insolvent.
This page provides you with a broad overview of early warning signs that your business may be experiencing financial difficulty. It is not designed to constitute legal advice and as such if your business is experiencing financial difficulty it is recommended that you always seek independent legal and financial advice.
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Lloyds Bank is a trading name of Lloyds Bank plc, Bank of Scotland plc and Lloyds Bank Corporate Markets plc. Lloyds Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no.2065. Bank of Scotland plc. Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland no. SC327000. Lloyds Bank Corporate Markets plc. Registered office 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 10399850. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278, 169628 and 763256 respectively.
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Eligible deposits with us are protected by the Financial Services Compensation Scheme (FSCS). We are covered by the Financial Ombudsman Service (FOS). Please note that due to FSCS and FOS eligibility criteria not all business customers will be covered.