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Financial solvency means being able to pay debts on time and still have liquid capital. It leads to financial freedom, good credit, and credibility in business. Financial insolvency causes stress, poor credit, and difficulty getting credit. Solvency allows for personal growth and business expansion. Having money left over after paying debts is also important.
Being financially solvent means being able to pay all financial obligations in a timely manner and still have liquid capital to spend. People in this state are not burdened with financial debt and generally have good credit. Solvency status applies to businesses and individuals that can meet all debts in a timely manner without having to deplete cash reserves in the process.
Sometimes referred to as being in black or pink, being financially solvent generally represents a certain level of financial freedom. People and companies operating in this state have solid control over their finances, which translates to greater credibility when doing business with others. Being able to meet all financial obligations while still having money to spare is a status most people aspire to regardless of their current career or financial situation.
People who are financially insolvent, on the other hand, are those who have great difficulty paying debts on time. In addition to feeling financial stress as a result of insolvency, individuals and businesses in this situation often experience a poor credit standing with others. This often means not being able to get future credit or being charged a higher interest rate when credit is extended, particularly compared to rates offered to those who are financially sound. It is not unusual for those who are not creditworthy to have an increased need for government assistance, bankruptcy, or seek financial bailouts through other methods and sources.
Being solvent generally means the ability to enjoy levels of financial freedom that are not available to insolvent businesses and individuals. In addition to meeting financial obligations, such as paying bills and paying employees on time, financially sound individuals and businesses can save or invest additional money in ideas and activities at will. Doing so often results in personal growth and business expansion.
While being financially solvent means the ability to pay off debts on time, an important aspect of this status is the ability to have money left over after doing so. Many people work hard to regularly meet their financial obligations on time, but find it difficult to budget finances in such a way that they have discretionary cash left over after all bills are paid. Being able to practice one aspect of solvency without the other does not qualify one as fully financially solvent.
Smart Asset.
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