Reduce your chance of becoming ac-customer-ed to an insolvent client

23 / 01 / 2018

Carillon is dead.  There are rumours of more to follow. Outside the construction industry, these difficulties could be a useful wake up call to ensure you are well prepared.

Here we have 5 tips to start to put protective measures in place before it is too late.

1. Be careful not to extend credit / too much credit

There can be a fine line between supporting your customer and recovering nothing – which in some circumstances can have a critical effect on your own business. Monitor the relationship carefully and get as much information and regular updates as possible (hopefully already built into your contract).

2. What are the terms of your contract and your rights to terminate the contract?

Review your terms.  Do you have security, step in rights, retention of title or other enforcement rights? Do you need to change your terms (such as to get security)?  Legally and commercially, can you now change them? When drafting a contract also try to ensure  you can  terminate at the earliest indication of failure. Whilst it is not foolproof, depending on the status of the client, you may be able to beat the rush and get security or otherwise protect yourself.

3. Think about the big picture.

Carefully consider terminating or enforcing your rights in other ways. Does it affect the business in other ways? If the client survives, is that the end of the relationship or is it worth considering further assistance or time to pay to ensure the continued relationship (even if you have taken a bath but the relationship could survive after an insolvency process).

4. Consider any proposal from the client with care.

Is the proposal realistic? Is this just delaying the inevitable whilst your debt increases?What is the worst case scenario? Are there opportunities or benefits to arise from the current situation (such as higher prices but with a later payment date or actually acquiring the client)?

5. Plan for the worst case.

In conjunction with the above, plan for the worst case. Make contingency plans, consider the position if the client becomes insolvent. Is there anything you can do to improve your position or can you be proactive in their insolvency process? Can you recover goods or documents, code, programs ? Check your terms again.

Clearly every situation is different but financial difficulties and how companies try to deal with them often follow a similar pattern.  These tips are simply the first tools to get out in what could be a large and sophisticated tool kit.