Insolvency in the spotlight: Warning signs that a customer or supplier may be going under

The number of UK companies entering administration has been rising steadily in recent years, hitting a 5-year peak in Q3 2019 (the latest available figures).

The Insolvency Service – the government agency that supports those in financial distress – has confirmed there were 485 administrations in the UK in Q3 2019, up 20% from the previous quarter which is the most recorded by the Insolvency Service in any one quarter during the last 5 years.

With a rising number of businesses entering administration and formal insolvency procedures, what does this mean for their suppliers and customers?

The business landscape can be difficult to navigate and sometimes the downfall of one large customer or supplier triggers a domino effect that has a significant and detrimental impact on otherwise healthy and solvent companies further down the supply chain.

A business facing serious financial distress may be enter a formal insolvency procedure such as administration, a Company Voluntary Arrangement (CVA) or liquidation. Although you (as a creditor) will have no control over this, preparing for and implementing measures to protect against financial volatility can be key to assure survival.

Incorporating key protection clauses into all contracts, requesting personal guarantees from directors or shareholders and revaluating credit terms are all measures that can be implemented to protect you as a creditor.

Monitoring the financial health of your customers and suppliers is also vital.Insolvency rarely comes out of the blue. Quite often there are small yet subtle hints that financial strain is taking its toll. Maybe payment reminders are ignored, or staff have been recently laid off or senior staff have resigned, or maybe there has been a substantial increase in the time it takes to pay for a product or service. Whilst these certainly aren’t prescriptive traits of a customer or supplier in distress, they may well be indicative of wider cash flow issues and therefore raise concerns about long-term stability.

The key is to prevent yourself from being dragged under as a result of the failure of a customer or supplier.

Putting protective measures in place, remaining well engaged with your customers and suppliers and seeking help from qualified experts at the earliest possible opportunity will help to assure your future.

If you are concerned about a customer or supplier and would like help future proofing against detrimental factors or want to know more about your rights as a creditor, please get in touch with member of our award winning Business Recovery and Insolvency team today.