Early warning signs you may struggle to pay creditors: what to check now
Why the warning signs appear first
A business facing financial pressure often shows signs weeks or months before a creditor raises a formal demand. You may notice the pressure building through late supplier payments, juggling which bills to pay first, or relying on the next customer payment to clear old obligations.
The earlier you understand your position and take appropriate action, the more options you may have to stabilise the business and reduce the risk of more serious consequences. Waiting until creditors begin formal action narrows those options significantly.
Internal signs of financial difficulty
You will not always see these signs from the outside, but if your business is experiencing ongoing losses, poor cash flow, incomplete financial records or disorganised internal accounting, lack of cash-flow forecasts and budgets, increasing debt, problems selling stock or collecting debts, or overdue taxes and superannuation liabilities, you are facing genuine financial pressure.
Separately, relying on director loans, personal funds or customer deposits to keep operating, taking on work the company may not be able to complete, and debts building up while waiting for future income are all warning signs that should prompt you to review the position closely.
These signs do not always mean the company is insolvent. However, they should prompt you to review the company's financial position, monitor it closely, seek appropriate advice, and document the steps you take.
External signs visible to creditors and suppliers
External signs include solicitors' letters, demands, summonses, judgements or warrants issued against your company, suppliers placing your company on cash-on-delivery terms, special arrangements with selected creditors, overdraft limit reached or defaults on loan or interest payments, change of bank or lender, increased monitoring or involvement by financiers, inability to raise funds from shareholders, and increased complaints from customers.
If you notice that some suppliers are being paid immediately while others are repeatedly delayed, or if payments are made in rounded sums that do not match specific invoices, those patterns often indicate selective creditor management under financial pressure.
Other creditors may notice these patterns as well. If you are owed money by a customer and observe several of these signs, you have reason to review your credit exposure and decide whether further work increases your risk.
Source: ASIC: Insolvency for directors
Check the position before the next conversation
If you see multiple warning signs, review how much the customer owes you, how much further work is required to complete your contract, and whether you can afford the loss if payment does not arrive. Your cash exposure is the amount currently unpaid.
Consider whether continuing work increases your exposure or whether stopping work may breach your contract. Seek advice before unilaterally suspending performance, as that decision can have its own legal and commercial consequences.
Gather your contract, invoices, delivery records and payment history now, while the account is still current. A clear file gives you and an adviser something concrete to assess and makes follow-up more consistent.
When creditors should consider early action
Signs a company is in financial trouble include the late payment of invoices, dishonoured payments or overdue taxes and superannuation liabilities. If you are owed money by a company and suspect it is in financial difficulty, you should first raise your concerns with the company. If this fails, you can review ongoing trading arrangements and seek competent advice on your options to recover the debt.
If you supply materials on credit and have not registered a security interest on the Personal Property Securities Register, consider doing so while the account is still being managed. A registered security interest may give you priority over other creditors if the customer later becomes insolvent, though registration alone does not guarantee payment.
Source: ASIC: Insolvency for creditors
Director obligations and ATO exposure
If you receive a director penalty notice from the Commissioner of Taxation for your company's unpaid and unreported Pay As You Go withholding or Superannuation Guarantee Charge amounts, you should immediately seek competent and relevant professional advice. Failure to take appropriate steps within 21 days may result in personal liability for the unpaid company tax.
You may be able to set up a payment plan online if the debt is under two hundred thousand dollars. For payment plans above that amount, you will need to contact the ATO. A payment plan allows you to break down your payment into smaller amounts that are made via instalments and are spread over the shortest possible fixed period of time. Tax debts on a payment plan continue to accrue general interest charge, which compounds daily.
Early contact with the ATO before a director penalty notice is issued preserves more options. Once the 21-day window begins, your choices narrow significantly.
Source: ASIC: Insolvency for directors
What to do when you recognise the signs
Check whether the company can pay its debts when they fall due, look at bank balances, overdue debts, bills due soon, tax, superannuation, wages, loan repayments and supplier payments. Seek independent professional advice early, speak to an accountant, lawyer or registered liquidator, and give them accurate and up-to-date information.
Be cautious about taking on new debts, before accepting new work, taking deposits, borrowing money, or entering contracts, consider whether the company can meet the obligations that will result. Talk to your creditors, early honest conversations may lead to repayment plans or revised terms. Get financial records up to date, current records help you and your adviser understand the company's position.
If you are a creditor reviewing a customer's position, bring the same discipline to your own decision: document what is owed, when payment was last received, what warning signs you have observed, and what options remain available to you. Obtain advice promptly if the position is deteriorating.