This article is intended for general information purposes only and does not constitute personalised financial, legal or insolvency advice. The appropriate course of action will depend on your business’s individual circumstances and contractual position. You should seek advice from a qualified legal, financial or insolvency professional before making decisions that could affect your rights, obligations or financial position.
Source: https://www.companydebt.com/insolvency/what-to-do-about-customer-insolvency/
When a customer enters into administration, it can be a worrying time for your business. Although the administrators will work hard to try to save the company and settle all their debts, it’s sadly not always possible and it’s a worrying time for your business. This guide outlines the steps you can take to mitigate the risks of an insolvent customer, giving you and your business the best chance of coming out of this on the other side.
What to do when a customer first enters administration?
Timing is of the essence when a customer enters administration, as the earlier you act, the more chance you have of claiming what you are owed.
Before taking any action, it’s important that you confirm the status on Companies House and the Gazette to be sure that your customer has officially entered into administration. Following this, it’s vital that you collect every open invoice and check whether your contract carries a retention of title (ROT) clause. Pause any new orders on a separate contract, and make sure to get advice before you stop supply under a continuing contract.
Identify any sums you may owe the customer which can be offset against their debt to you, and submit a clean proof of debt with your delivery notes attached. Time is of the essence here, stock that is identified in the early couple of days may be processed, sold or moved after a few weeks. The most successful claims are the ones made before that happens.
What are the main risks?
The biggest risk is continuing to supply goods or services without a new credit decision. Any debt accrued pre-appointment sits in the unsecured state, whereas goods delivered after appointment, on the request of the administrator and with a written commitment to pay, are classed as expenses of the administration and are paid ahead of the unsecured creditors.
How can Capify help?
Once you have submitted all the relevant paperwork, it’s a waiting game to see how much you’ll be paid, if you’re paid at all. This isn’t reassuring when you’ve got your own bills and wages to pay. Capify is here to help plug this cash flow gap and keep your business moving; we’ve been funding businesses since the financial crash, so this won’t be the first difficult business case we’ve seen. We consider businesses from all credit profiles, and our decisions are made by real people, not computers.
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What can you do to reduce the risk of this happening again?
Unfortunately, there isn’t a great deal you can do to make sure that this never happens again, but there are steps you can put in place to reduce the risk. When onboarding new customers, it’s important to check their business thoroughly, check Companies House to make sure their records are up to date, and check their credit file on companies like Equifax to ensure they have a good track record of paying suppliers and invoices.
In addition, it’s important to implement a payment system that protects your business in the event of a customer entering administration. Taking payment before providing goods, or at least taking a large deposit, will ensure your cash flow in minimally impacted in the event of a late or no payment.
Finally, it’s crucial to your business that you don’t have one major customer that you rely on for your cash flow. Even the biggest and strongest companies can quickly get into financial difficulty, and in the event of losing your largest customer, this could leave you in serious trouble. Make sure you have multiple customers all providing an even split of your cash flow if possible, so losing one doesn’t leave your cash flow vulnerable.
If you would like some help in increasing your customer base, our No Nonsense Marketing Guide for SMEs is the perfect place to start. It outlines simple ways you can marketing your business, and helps you set up a plan to follow, check it out here.
