The concept of suspension of payments refers to the judicial situation in which a company or a professional declares his incapacity temporarily to face the payment of the debts contracted previously with the creditors.
Characteristics of suspension of payments
In a suspension of payments, the company has a significant amount of assets, but they are not liquid enough to be able to use them and pay the debts that you maintain. It happens quite often that these assets are greater than the debts you have, but it presents many difficulties to transform them into money.
The purpose of the suspension of payments is to reach a new agreement, regulated by law, with the creditors, with the companies or people with whom you have debts. In this new agreement, new payment conditions or another period of time are addressed.
Therefore, a suspension of payments is characterized by being a temporary situation, by the company's lack of liquidity and by having assets that exceed liabilities.
The concept of suspension of payments should not be confused with bankruptcy.
Example of suspension of payments
To better understand the definition of suspension of payments we will use an example. A meat company that is dedicated to marketing its products through stores and restaurants will take up to 60 days to charge for its items. It may be the case that some are late in payment and the meat company accumulates unpaid invoices but lacks liquidity. Business managers need money to meet the salaries of workers and suppliers. They could be declared in suspension of payments, although in a short period of time he hopes to satisfy the debts once he begins to collect what the stores and restaurants owe.