Insolvency is a situation when a business (or an individual even) cannot pay its debts when they fall due. For example, a business has used credit to purchase goods but has no money to pay the bill when it is presented by the supplier of the goods.
Most businesses will fail to pay some their bills on time, at some point, but this does not mean they are insolvent. Failure to pay on time could be due to a poor administrative process, or there is a temporary staffing issue, or that records have been lost. Insolvency arises when the businesses debts far exceeds the actual cash and other liquid assets that it has.
A business or organisation may become insolvent if directors, committee members and managers have insufficient training in accounting and finance. They may not be able to:
A business or organisation may become insolvent if there is a failure to manage risks and suffer financial losses as a result of:
A business or organisation may become insolvent if there is a failure to deal with changes in the business environment such as:
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