Insolvency rates are set to remain high for the course of 2026 and therefore the risk of your business becoming a casualty to customer insolvency increases with it.

If you are a supplier of goods or services active monitoring and management of customer relationships is crucial to mitigating any risk of bad debts and any ripple effects this may have on your own business.

In her latest article, Grace Moreton, an experienced Restructuring and Insolvency lawyer and Associate in our dedicated Corporate Recovery and Insolvency team provides some practical advice for businesses.

Financial Difficulties – signs to look out for

There are many things that could signal customer financial distress:

• delayed or missed payments,
• increasing invoice disputes,
• requesting extended credit terms,
• making partial payments, and
• poor communication (e.g. avoiding phone calls / ignoring emails).

Other indicators could involve reduced order volumes, senior management changes, and negative industry news.

Proactive customer monitoring helps mitigate risks of bad debt.  How often do you talk to your customers about their business?

It would be prudent to also monitor Companies House for any filing updates or, more often than not, missed filings of company accounts as this can also signify financial distress.

Risk Mitigation

There are several things that you can do to protect your business from bad debts, including:

• Robust Terms and Conditions – clearly defining the legal relationship between a business and its customers, covering rights, responsibilities, liability, payment terms and retention of title (discussed further below)
• Credit Insurance – Trade credit insurance can cover losses from customer insolvency
• Request Upfront Payments – particularly for high-risk clients (but this can be applied across the customer base if circumstances allow) request deposits or full payment before delivery
• Credit Checks – regularly monitor the financial health of customers.
• Higher risk customer accounts can be monitored automatically.

Things to do

If you are notified of a customer insolvency there are several things that you can do to help to establish and protect your position;

• verify the insolvency – check with the Central Registry of winding up petitions, confirma information available at Companies House and / or the London Gazette in order to identify the liquidator or administrator (NB – information available online is often not in “real time” and therefore may not be accurate at the time of searching).
• contact your customer and safeguard any goods that have not been paid for;
• stop all further deliveries (including any goods in transit)
• review copies of customer contracts / terms and conditions of business
• obtain copies of invoices / delivery notes
• check bank accounts / payment status – have goods dispatched been paid for?
• submit a Proof of Debt to the appointed insolvency practitioner – this is a formal claim to the Insolvency Practitioner for all outstanding invoices / monies due (include all supporting evidence / documentation)
• check your trade credit insurance and notify / make a claim where applicable

Terms and Conditions – Retention of Title

A Retention of Title clause (ROT) ensures a supplier retains legal ownership of goods, even after delivery, until full payment is received. Its primary purpose is to protect the supplier against the insolvency of the buyer or default, allowing them to reclaim the goods in the event of such default.

An “all-monies ROT” clause covers payment in full for all goods supplied irrespective of whether they are supplied on a single, or multiple, orders.

If your terms of business include an ROT clause and the supplied goods are unpaid, identifiable and located on the buyers premises then proper and prompt enforcement of the ROT clause is crucial to recovery.

ROT practical enforcement

1. Review contracts / terms and conditions of business and confirm the incorporation of the same into dealings with customer and ROT existence – does the ROT clause match the type of business between you and your customer?
2. In an insolvency situation, immediately write to the appointed insolvency practitioner asserting retention of title over the specified goods and requesting preservation of the goods (we can assist in identifying the appointed insolvency practitioner if this information is unknown).
3. It is important to provide all relevant information including, invoice numbers, delivery date, quantity, location, copy contacts / terms and conditions in support.
4. Demand access to the goods for inspection and request confirmation that the goods are not / will not be sold or used and that those goods will be segregated.
5. If your ROT clause is not accepted and access to goods is continually refused then we can assist in asserting your rights

If your current terms and conditions do not contain an ROT clause, then you may want to consider whether your business would benefit from such a clause. Even if you have an ROT clause in your terms of business, you should check that it is fit for purpose.

Our Restructuring Team is experienced in bringing and defending ROT claims for Insolvency Practitoners and suppliers. If you require assistance on this or any similar issue, please do not hesitate to contact our team of specialist advisors who are here to help you. Talk to us today by calling 01482 325242 or email enquiries@andrewjackson.co.uk