Warning Signs from a Bank's perspectiveWhat will your bank look for?
All of the signs on the warning signs page and these additional areas will be looked at by your bank. See introduction for how to use the rest of this site. New Guide - What are FIXED and FLOATING Charges?
- Constantly at limit this is called "ceiling borrowing", does your bank facility history show constant borrowing at or above the facility?
- Trend borrowing analysis - what does your borrowing trend show?
- Returned cheques - if you have written cheques when insufficient funds are available this is a clear sign of insolvency.
Did you know that banks use sophisticated computer programmes to highlight badly performing accounts? So they will be keeping an eye on the business performance well before you highlight any problems to them. It is always best to keep the bank appraised of cash flow issues and when problems arise. Most good bankers and bank managers are not just fair weather friends. But they will not usually support companies where the directors are not acting in the best interests of the creditors, refuse to act and are not prepared to listen to the bank or get professional advice.
What Are The Other Signs They Look For?
- Poor management information flow.
- You are always asking for new facilities.
- The business monthly management accounts are always delayed (or non existent).
- Audited accounts delayed why is this because the auditors cannot sign them off? If so what does this mean for the bank?
- You cannot produce forecasts why not there are very many packages available to produce simple forecasts.
- Security of exposure if they hold fixed & floating charges is it enough security? Will they want more?
- What of the commitment of the key directors/managers are they demonstrating their commitment?
- What capital do they have in the business, shares; investment; human?
- Is professional advice taken where required?
- What is spirit of co-operation with the bank?
- Do you regularly miss meetings?
- Risk Analysis will be done on
12.1. Lost contracts
12.2. Bad debts
12.3. Refinancing of assets
12.4. Contractual disputes
12.5. Insurance Cover
12.7. Professional Opinion
So if the bank can see too many warning signs they will become concerned.
What If We ARE Insolvent?
In our experience if the directors are proposing a CVA or restructuring they should involve the bank as early as practicable. But that sometimes means taking the solution (as well as the problem) to them at the same time. All banks will seek to support properly constructed and viable solutions. They may want to get a second opinion but in the main they will try to help. If liquidation or administration seems to be the only option it is well worth talking to the bank sooner rather than later. Treat the bank as a stakeholder, not the enemy.
Now talk to us, we know how to talk to banks with you. We can get their support for a well structured plan. So now bring in the experts!