When A Client's Customer Goes Insolvent
An insolvent customer is alarming, but panic helps no one. Quick, informed action gives your client the best chance of recovering at least part of what they are owed.
In this guide
- Help a client respond calmly to a customer's insolvency
- Identify what can and cannot still be recovered
- Preserve the client's position and records
- Know when professional help adds value
7 min
Confirm What Has Actually Happened
Insolvency covers several different situations — voluntary administration, liquidation, or a payment plan with creditors — and each affects recovery differently. The first step is to establish exactly what has occurred and who is now handling the customer's affairs, rather than acting on a rumour or a vague notice.
Encourage the client to obtain any formal notice they have received and note the appointed practitioner's details. Knowing the precise status shapes everything that follows, because the options open to a creditor of a company in administration differ from those for one already in liquidation.
Understand The Recovery Reality
Be honest with clients about prospects. Once a customer is insolvent, unsecured creditors often recover only a fraction of what they are owed, and sometimes nothing. Setting realistic expectations early prevents the client from spending more time and emotion on the matter than the likely return justifies.
That said, recovery is rarely all-or-nothing. There may be a dividend to creditors, assets to be realised, or a guarantee from a director that survives the company's failure. Help the client see the full picture rather than assuming the debt is automatically and entirely lost.
Protect The Position
There are practical steps that preserve a client's standing. Stop supplying on credit immediately, gather all documentation — invoices, contracts, delivery records, correspondence — and check whether any retention-of-title clause or personal guarantee applies to the debt. These can materially change what is recoverable.
Lodging a creditor claim correctly and on time matters, as does responding to any formal correspondence from the administrator or liquidator. Missing a deadline can forfeit even the partial recovery that was available. Good records, assembled quickly, put the client in the strongest position the circumstances allow.
Know When To Bring In Help
Insolvency is one area where professional input often pays off, particularly where guarantees, security or significant sums are involved. A specialist can assess whether anything beyond the formal process is worth pursuing, such as a guarantor with means to pay.
This is general information, not legal advice, and complex insolvencies warrant proper professional guidance. Where a personal guarantee or a recoverable balance exists, your client can seek a free debt appraisal to understand the realistic options before committing time or money to the matter.
Key takeaways
- Establish the exact insolvency status before acting
- Unsecured creditors often recover only part of the debt, if anything
- Stop credit, gather records, and check for guarantees or retention of title
- Guarantees and security can survive a company's failure
Frequently asked questions
Will my client get anything back from an insolvent customer?
Often only a portion, and sometimes nothing as an unsecured creditor. Any personal guarantee, secured interest or retention-of-title clause can improve the position.
What should the client do first?
Confirm the exact insolvency status, stop supplying on credit, and gather all documentation. Then lodge any creditor claim correctly and on time.
Is it worth pursuing a guarantor?
It can be, if a personal guarantee exists and the guarantor has means. This is general information only, so complex cases warrant proper professional advice.
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