Financial distress is a serious financial problem faced by individuals, companies, or any other organization or entity. It occurs when the ability to pay liabilities and other financial obligations by an entity is hampered or impossible due to insufficient cash flows, a decrease in revenues or income, or an increase in costs or expenses.

When an entity faces financial distress, its prospects of survival diminish and bankruptcy may become imminent. If a company is facing financial distress, its products and services may diminish, leading to customer loss. The creditors may also no longer be willing to provide funds to the entity, which further aggravates the situation.

Individuals can enter financial distress when they are unable to meet their financial obligations. Causes often include reckless spending, excessive debt, unmanageable expenses, and poor financial planning. The effect of financial distress on individuals include poor credit ratings, eviction notices, collection agency calls, and foreclosure.

Organizations such as banks and governments may take certain measures to help an entity in financial distress. These include restructuring debt, providing financial assistance, and offering government guarantees. Banks may also offer debt restructuring packages, reduce interest rates on loans, and provide additional financing. In some cases, external financial advisors may be relied upon for assistance.

It is important for both individuals and companies to take proactive steps to avoid experiencing financial distress. Companies should analyze their financial data, create contingency plans if needed, and monitor their financial operations closely. Individuals should create a budget and plan for inevitable future expenses, such as emergencies and retirement. If an individual or business is experiencing financial distress, they should consult a financial advisor or credit counselor to discuss their options and find a workable solution.