Insolvency and bankruptcy are often used interchangeably, but they actually mean different things.
Bankruptcy refers to the financial situation of a company where it is no longer able to pay its debts on time. Bankruptcy can be caused by various factors, such as a poor economic situation, an ineffective business model, or poor financial planning. If insolvency is imminent, the company usually files for bankruptcy to enable an orderly withdrawal from the business. Bankruptcy doesn't necessarily mean the end of the company, however. A restructuring or recovery plan can be developed to save the company.
Bankruptcy, on the other hand, refers to the legal process initiated by a court. The assets are liquidated in order to settle creditors' claims. Bankruptcy usually means the end of a company's operations.
In order to avoid insolvency or bankruptcy, it is important to have an effective financial management and controlling system such as Money Key in order to identify risks at an early stage and take appropriate measures. Appropriate financial planning, monitoring of business processes, and risk management can help keep the company on track and avoid financial bottlenecks.
