What Role Does Accounts Receivable Play During a Bankruptcy?
Dec. 11, 2015
Bankruptcy can be a financial tool for individuals and businesses alike. However, readers of this New York debt relief and bankruptcy blog know that individuals and businesses often cannot utilize the same types of bankruptcy protections. In some cases, different types of businesses cannot use the same types of bankruptcy; for example, while many large companies may find success through Chapter 11 bankruptcy filing, many small businesses may not even qualify for the process.
During the Chapter 11 bankruptcy process, a debtor business must show that it can become profitable under a reorganization plan. While companies with diverse assets and vast holdings can usually demonstrate how reorganization will help them, small businesses with few options for reorganization can be denied Chapter 11 bankruptcies due to their inabilities to turn their businesses around. When assessing if a business can become profitable, certain business records care reviewed by the bankruptcy court.
For example, a court will evaluate a business’s balance sheet. A balance sheet shows what money is coming into a business, such as from sales and investments, as well as the money that is going out of a business, such as for wages and overhead costs. It will look at the business’s tax statements and other operation documents. It will also look at its accounts receivable and cash flow projections.
Accounts receivable are the payments that a business expects to receive from others for services or products rendered. They include the money owed to a business that may be used to put toward the business’s debts and creditors. Accounts receivable are important to a business’s cash flow as they infuse a struggling business with financial resources to keep its doors open.
Bankruptcy can be hard on a business, whether it is a large corporation or a small entity. Not all small businesses are able to turn their profit problems around and for this reason they may not qualify for Chapter 11. However, bankruptcy attorneys can help those businesses find debt relief strategies that could work for them and that can help them turn their financial problems around.