A phoenix company is a commercial entity which has emerged from the collapse or insolvency of another. The new company is set-up to trade in the same or similar trading activities as the former, and is able to present the appearance of “business as usual” to its customers.
Phoenix companies are 4 times more likely to fail in the next 12 months. Therefore it is essential that you get a full picture of an entity before you agree to any credit terms.
How to identify phoenix companies.
Understanding the history of a director behind a business, including their previous directorships, both past and present, will help you identify a potential phoenix company.
Looking specifically at the entities that have failed, when and why they failed, and how they correlate to new entities that have been set up by the same director will give you the knowledge to help uncover a phoenix company.
By obtaining a credit report on the entity before you take the risk of providing credit, you could save the cost of a bad debt and safeguard your cash flow.