Customer Going Out of Business — What to Do

Speed matters most

When you hear that a customer who owes you money is in serious trouble — payments slowing right down, worrying rumours circulating, or formal warnings of insolvency — time becomes the single most critical factor in whether you recover anything. Money and saleable assets do not last long in a failing business, and the creditors who move first generally do considerably better than those who wait quietly and hope to be paid in turn.

Do not assume for a moment that you will be paid out of goodwill, loyalty, or some natural sense of fairness about who came first. A business in trouble rarely has the luxury of paying everyone, and sentiment does not come into it. Treat any credible warning seriously and act on the outstanding debt straight away, while there is still something left to recover and the customer is still contactable and trading.

Stop the bleeding

The first practical step when a customer looks to be going under is to stop actively making your own position worse. Immediately halt any further work, supply, or delivery on credit to a customer who may be failing, because every additional unpaid invoice you allow to accrue is simply more money you are very unlikely ever to see again:

• Suspend all ongoing work and any new orders.
• Avoid extending any further credit whatsoever.
• Secure or recover any of your own goods you can.

Protecting yourself from further loss has to be the immediate priority, before you even turn your attention to recovering what is already owed. It is a natural instinct to keep delivering in the hope of preserving the relationship, but with a customer who is genuinely failing, that instinct simply hands them more of your time and stock for free at precisely the worst possible moment.

Escalate the existing debt now

For the money you are already owed, a customer heading towards collapse is emphatically not the moment for another gentle, patient reminder. Move quickly and decisively to firm escalation while the customer still has some funds and is still trading, because a debt chased early in a decline is far more recoverable than one pursued listlessly after the doors have finally closed.

Professional recovery moves faster and hits harder than most individual businesses can manage alone, and speed is everything here. You can refer the debt to Merion on a commission-only basis, and our specialists can prioritise a debtor who is clearly winding down and act while there is still realistically something to collect. Hesitating in the hope the situation improves usually just means joining a longer queue of creditors once formal insolvency removes your options.

If they enter formal insolvency

If the customer formally enters liquidation or administration, an insolvency practitioner is appointed to take control, and the rules of the game change significantly from that point on. You will typically become an unsecured creditor, and you may need to lodge a formal proof of debt in order to be considered at all for any eventual distribution of whatever funds remain.

Respond promptly to any notice you receive from the appointed practitioner, and lodge your claim properly, with your supporting documents attached. Unsecured creditors, it has to be said, often recover little or nothing in the end, which is precisely why acting decisively before formal insolvency gives you a meaningfully better chance of seeing your money. This is general information about the process, not legal advice, so take proper advice on any substantial claim.