When a major customer collapses: protecting your cash flow

Some crises arrive by email. A short notice from an administrator or liquidator, a customer who has been slow for months now officially unable to pay, and a hole in your receivables that you know won’t be filled.

A customer collapse is especially hard on smaller businesses because you’re usually an unsecured creditor, well down the queue. The best defence is fast action and a realistic cash forecast. Our emergency action checklist has this as “Key customer collapse”.

What should you do in the first 24 hours?

• Stop supplying on credit. Pause deliveries and work in progress until you know who will pay for it.
• Confirm the appointment. ASIC’s published notices website lists formal insolvency notices, and the appointee’s contact details.
• Pull every open invoice, delivery docket, contract and email for that customer into one folder.
• Check your PPSR registrations. If you supply goods on retention of title terms, find your registration details.
• Look at your bank balance and what’s due over the next month, without the money that customer owes you.

What needs doing in the first week?

• Lodge a proof of debt. ASIC’s guide for creditors says the liquidator will notify you and you’ll have at least 14 days, and to attach copies of invoices and supporting documents — claims can be rejected without them.
• Contact the administrator or liquidator about any retention of title goods. Speed matters.
• Understand the queue. Costs and employee entitlements are paid before unsecured creditors, and each category must be paid in full before the next. Recoveries for unsecured creditors are often small and slow.
• Know about unfair preferences. Payments you received in the six months before the liquidation can sometimes be clawed back if the customer was insolvent. Keep your records and get advice if a claim arrives.
• Tell your own suppliers and lenders early if you’ll need extra time. Most prefer an early phone call to a surprise.
• Rebuild your forecast. Our recovery cash-flow forecast guide walks through a 13-week version.

Who should you call?

Contact	Why
The administrator or liquidator	Proof of debt, retention of title, ongoing supply
Your accountant	Bad debt write-off, GST adjustments, forecasting
Your lawyer	Retention of title claims, unfair preference claims
Your bank	Overdraft limits, repayment options
Your own key suppliers	Temporary extra time if needed
Small Business Debt Helpline — 1800 413 828	Free financial counselling

How big is the hole, really?

A customer that owed you a large balance usually also represented a chunk of future sales. The cash impact has two parts:

Part	What to do
The unpaid balance	Assume a small recovery, late. Don’t budget for it.
Lost future revenue	Cut costs tied to that customer; look for replacement work
Stock or work in progress made for them	Recover under retention of title, resell, or write off
Possible preference claim	Ask your accountant whether you’re exposed

Once you can see the gap, funding it becomes a practical question rather than a panicked one. If you’d like help with that, you can enquire here in about a minute — there’s no credit check at that point.

How do businesses fund the gap after a customer collapses?

• Unsecured cash-flow funding — typically $5,000 to $500,000, based on your remaining turnover and bank statements. Good for bridging a few months while you replace the lost work. See unsecured emergency cash.
• Line of credit — draw only what you need as the cash flow recovers.
• Property-secured loan — for a bigger gap, from $20,000 to $5,000,000 over residential or commercial property.
• Keeping wages paid — if payroll is the pressure point, see paying staff through a crisis.

Past credit issues or an ATO debt that built up because of the collapse are considered case by case.

Illustrative example only: a joinery business supplies a builder that goes into liquidation owing two months of invoices. The owner stops supply, lodges a proof of debt, recovers some unfitted joinery under retention of title, and uses a 12-month unsecured facility to cover wages and materials while new builders come on board.

What mistakes do suppliers make when a customer collapses?

• Waiting for good news. Administrators sometimes find a buyer, but budgeting on that hope leaves you short if they don’t.
• Supplying “one more order” on credit to a company already under pressure. If you do supply an administrator, get written confirmation of how you’ll be paid.
• Ignoring the paperwork. A proof of debt lodged late or without invoices can simply be rejected.
• Chasing directors personally without advice. Personal guarantees and director liability are specialist questions — get your lawyer’s view first.
• Forgetting the tax side. Your accountant may be able to claim back GST on a bad debt and write it off at the right time.

What documents should you keep?

• All invoices, statements, contracts and delivery dockets for that customer
• Your trading terms, including any retention of title clause
• PPSR registration details
• Correspondence with the administrator or liquidator
• Your proof of debt and any acknowledgement
• Bank statements and management accounts

Is it time to fund the gap?

Losing a big customer to insolvency says more about their business than yours. If you need working capital while you replace the work, we can help you size it.

A human being, not an auto-dialler, calls to talk it through with you. We won’t pull your credit file just because you asked a question — that waits until you say go. You won’t get a wave of calls from lenders you’ve never heard of, because we don’t pass enquiries around.

Honest, precise answers — the sum, what it pays for, your state, any real estate — mean we can point you in the right direction straight away. Open the enquiry form.