How accountants can proactively help clients avoid insolvency risks

As economic conditions remained challenging and insolvencies continued to rise, he suggested that accountants were uniquely positioned to both act as a final safeguard for SMEs facing heightened risk and to intervene earlier by using real-time credit and payment data. 

Noting that accountants are often the last line of defence for SMEs, Coghlan said such professionals are uniquely positioned to identify emerging financial stress and help protect clients before problems escalate. 

“[Accountants act as] the subject matter expert, that trusted adviser that provides some education to their client to say, look, you should have a credit risk policy in place, you should be utilising credit reports and ongoing monitoring and alerts, and this is how you read them,” Coghlan said. 

With insolvency levels escalating, he emphasised that vigilance was paramount for advisers supporting SMEs.

 “We're at peak insolvencies at the moment, and from a macroeconomic perspective, it's not getting better.” 

With many businesses lacking specialist expertise in credit management, Coghlan stressed the constant need for these businesses to rely heavily on professional advice. 

“It is very rare that they are an expert in credit management or collections insolvency, so I would encourage organisations to seek that assistance,” Coghlan said. 

“Obviously, the first port of call is probably to speak to the accountant and [say], what should I be doing here? How do I manage my credit better?” 

While accountants can act as a final safeguard when clients face financial distress, Coghlan said their greatest value often comes much earlier in the process. 

Coghlan said insolvency risk often appeared in business behaviour long before formal insolvency events occurred.

“We're seeing late payments blow out at the moment, and that's really the leading indicator of insolvency risk when dealing with a counterparty.” 

Deteriorating payment performance was one of the clearest warning signs accountants should monitor.

“If you're seeing payments start to deteriorate or you're using CreditorWatch to run a credit check, and you're seeing the payment rating within that credit report show that they are slow paying and it is getting worse, that is a critical signal that that company is heading towards insolvency.”

Additional risk data could help advisers spot issues before businesses encounter serious trouble.

“Having that additional information at your disposal to be able to see it and react accordingly before there is real trouble and we're talking about insolvency or just lack of payment, that's the key to arm yourself with.”