With a spike of insolvencies anticipated in the months ahead, re-structuring and insolvency expert Nick Parsk, a director at advisory firm Quantuma, looks at five ways in which businesses can lessen the impact if one of their customers enters an insolvency procedure.
1 Act quickly
As soon as you find out or are formally notified of a customer’s insolvency, it is critical that you act quickly. As a first step we would suggest contacting the insolvency practitioner that has been appointed and find out what their proposal is for the company. Are they ceasing to trade or looking to sell the business as a going concern? If the business is sold to another party, it may present an opportunity for you to sell your goods/services to the new owner.
2 Look for opportunities in the short term
Ask the insolvency practitioner if they are continuing to trade the company in the short term while the business and assets are marketed for sale. If so, your goods/services may still be required, and you will be able to negotiate with the insolvency practitioner to ensure payment is made for any ongoing supply.
3 Get your goods back
You should inform the insolvency practitioner of any retention of title claim you may have for goods that the customer is holding. Generally, any goods that you have supplied to the customer with a valid retention of title clause must either be return-ed to you or paid for if used by the insolvency practitioner going forward.
4 Consider what the future holds for your business
Typically, you will need to write off the amounts owed to you by the insolvent company. Ensure you make a claim in the customer’s insolvency but be aware that the amount of any dividend paid is likely to be small and will not be available for some time. This will clearly impact your cash flow and you will need to consider other impacts to your business. How will the business cope with the loss of revenue?
5 Seek professional advice
It pays to seek professional advice to steer your business through the difficult trading period and ensure the best outcome for your company.
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