When the Customer Fails
A customer entering insolvency changes the question from when you will be paid to whether, and the answer is usually mostly no.
Theirswho controls this stretch
A customer entering a formal insolvency process changes the question from when you will be paid to whether, and how much. For an ordinary unsecured supplier the usual answer is very little.
The commercial boundary in “When the Customer Fails” is clearer when estimated work, recorded time and authorised scope can be compared. For teams researching time tracking software, inspect the provider’s current overview can add that operational context, but purchase terms and payment obligations should remain in the signed agreement.
Understanding the order of the queue explains why, and explains what can be done earlier.
For an independent reference relevant to “When the Customer Fails”, consult Experian business-credit resources. Compare general information with the contract, jurisdiction, payment route and accounting records involved.
The queue
Secured lenders and certain preferential claims come first; ordinary trade suppliers come near the end.
| Paid in what order | Typically |
|---|---|
| First | Costs of the process |
| Then | Secured lenders, on charged assets |
| Then | Claims given priority by statute |
| Last | Trade suppliers, sharing whatever remains |
The categories and terminology differ by jurisdiction; the supplier's position near the end does not.
The precise order, the categories and what they mean differ by jurisdiction, and are a matter for somebody qualified there.
What that means in practice
Unsecured suppliers often recover a small fraction of what is owed, or nothing, years later.
Planning on a recovery is not realistic; registering the claim anyway is still worth doing.
What to do immediately
Stop work and stop delivering. Continuing to supply a company in insolvency usually adds to the loss rather than protecting the earlier debt.
Registering the claim
The appointed office-holder will invite claims. Submit the documentation promptly and completely.
Suppliers who cannot evidence the debt are excluded from even the small distribution.
Retention of title
If what you supplied is physical, identifiable and still in their possession, a retention clause in your terms may matter a great deal.
Whether it is effective depends on the clause, the goods, the jurisdiction and how quickly you act.
The warning signs beforehand
Payment runs that start slipping, a change of finance contact, small sums paid against large ones, and sudden requests for extended terms.
A customer who begins negotiating terms it previously set is telling you something.
The hard part
These signals usually appear while the customer is still ordering, and declining the order is how a supplier survives it.
This is the leverage question in its sharpest form: the only moment you control is before you agree.
Concentration again
A supplier with a third of its revenue in one customer does not survive that customer's failure.
This is the strongest commercial argument for refusing attractive work from a customer who is already too large a share of your book.
Credit insurance
Exists, costs money, and pays out on exactly this. Worth pricing if a single customer's failure would end you.
Preferences and clawbacks
In some systems, payments a struggling company made shortly before insolvency can be examined and in some circumstances reversed.
Being paid is not always the end of it, which is another question for somebody qualified.
Why unsecured suppliers come last
The queue is not arbitrary. Secured lenders hold security precisely so that they are paid first, and certain claims — typically employees and some taxes — are given priority by statute for policy reasons.
Trade suppliers have neither security nor statutory priority, which places them in the general body of unsecured creditors, sharing whatever remains.
Whatever remains is usually very little, because the assets were charged to the lenders and the costs of the process come out before any distribution. The precise order, categories and terminology differ by jurisdiction and are matters for somebody qualified there, but the supplier's position near the end is close to universal.
What this means for the earlier notes
Read backwards, insolvency is the argument for everything in the first half of this collection.
A deposit is money already received. A stage payment is money received before the failure. Retention of title is a claim on goods rather than a share of nothing. Declining to let one customer become a third of your revenue is the difference between a bad quarter and the end of the business.
None of these are available once the process has started. Every one of them is available, free, in a conversation before the work begins.
That is why the warning signs matter more than the procedure. A buyer whose payment runs begin slipping, whose finance contact changes, who pays small invoices against large ones and who suddenly asks for longer terms, is describing its own position. The supplier who reads that and declines the next order survives it; the supplier who takes the order because the work is welcome joins the queue.
What to do in the first week
Stop supplying immediately, including work already instructed. Continuing adds to the loss rather than protecting the earlier debt, and in most processes it buys no priority whatever.
Then assemble the file while it is still possible: the agreement, the orders, the delivery evidence, the invoices, the correspondence. Contacts disappear within days and systems are switched off within weeks.
Then submit the claim as invited, completely and promptly. Suppliers who cannot evidence a debt are excluded even from the small distribution, which is the one part of this entirely within your control.
What to record before it disappears
Everything, immediately, before contacts disappear and systems are switched off. The file is the only asset you have left.