22nd January 2018Major customer insolvency: how to lessen the impact on your business

Here are some key considerations that can help to reduce the impact on your business.

Take charge

The faster you react, the more likely you will be able to manage the situation and lessen the impact on your business. Contact the appointed insolvency practitioner as soon as possible to discover what their plans are for dealing with the area of the business you supply to. It may be that the business is being marketed for sale and continuing to trade, or has already been sold to another company which provides the opportunity to supply to the purchasing company and maintain turnover. If the business has ceased to trade you know that you have to deal with the loss of turnover as soon as possible.

Advise the liquidator of any claim for retention of title

Goods that you have supplied to the company with a valid retention of title clause, as part of the condition of supply and which are still held by the company, must either be returned to you or paid for if used by the insolvency practitioner for ongoing trading once you have made a valid claim. Advise the insolvency practitioner that you are claiming retention of title and request that the goods you have supplied are set aside as soon as possible to ensure they are protected.

Contact your credit insurer

If you have taken out credit insurance, notify your insurer of the insolvency and confirm what steps you need to take to submit your claim and recoup your losses so that your claim can be processed as quickly as possible.

Find out if your services are still required

Establish whether the business, or part of the business, you were supplying to is still being traded by the insolvency practitioner. If your services are still required, ensure that payment for ongoing services is guaranteed by the insolvency practitioner. If you are the only possible supplier for the services you supply, this is a good opportunity to negotiate the repayment of all amounts outstanding to your business. If that’s not the case, then this is your chance to continue generating turnover in the short-term while the insolvency practitioner markets the business for sale. Ensure that the insolvency practitioner puts in writing that they will meet the payment for ongoing supplies. If you are a utilities provider, you cannot make it a condition of ongoing supply that your outstanding payments are met but you can request an indemnity from the insolvency practitioner for ongoing services. If the business is sold consider what terms you are willing to supply to the new company, especially if the business was sold to the former management.

Decide if you can weather the storm

Typically, you will need to write off the amounts owed to you by the insolvent company. You should make a claim in the insolvency, however, the amount of the dividend is likely to be small and will not be available for a considerable amount of time, or there will be no dividend at all. This will affect your cash flow and you’ll need to establish how it will impact your business quickly. Can you trade with the loss of revenue? Will you need additional finance? The sooner you act, the sooner the position can be resolved.

Forecast future profit, loss and cash flow

Produce financial forecasts to see the effect of any lost debt and future turnover, and assess what changes you need to make to your business. It’s important to forecast both your profitability and your cash flow. Find out if and when you are likely to have any difficulties making payments based on the revised circumstances. If there are issues with making payments to your suppliers and HMRC over the short-term while the position is improved, consider discussing deferring payments. HMRC has confirmed that it will offer support and guidance to businesses affected by the Carillion liquidation and is able to agree deferment, instalment payment and review penalties for missed payment depending on the circumstances. If you need additional finance, use the forecasts to establish the amount you need and to support any application to finance providers.

Avoid delaying inevitable cost-cutting

Once it is clear that you have lost ongoing business from the insolvent company, any costs that you can cut which relate to that business should be made as soon as possible, particularly direct costs. Many business owners attempt to increase sales while maintaining the same costs basis which makes it more difficult to reach breakeven. Review your overheads line-by-line to see what can be reduced.

Claim bad debt relief

If the debt owed to you is older than six months, it may be possible for you to claim bad debt relief for the VAT element of your claim against the insolvent company, assuming this VAT has already been paid to HMRC.

Take advice

If your business has been adversely affected by the loss of a major customer it pays to seek professional advice to steer through the difficult trading period and ensure the best outcome for your business. Given the potential impact of the loss of a major customer, it is a timely reminder for business owners to check the health of their business and for stakeholders to consider their medium and long-term objectives.

If you are affected and need a business health check, contact John Buchanan on:

T 020 7874 7954
jbuchanan@hwfisher.co.uk


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