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10 tips on how to cope when a big customer goes bust

SMEs must act fast if their biggest customer goes into administration, to ensure that they’re not dragged down as well.

At the height of the recession, as many as 120 companies each day were going bust. Woolworths, Comet, Dreams and La Senza were among the surprise casualties with the knock-on effect considerable.

BE Bust Customers 2-9-14

Here are some tips on what to do if the worst happens.

Get your facts right
It’s no good worrying unduly about your main customer going into liquidation or administration if it’s nothing more than a myth that sometimes circulates the business world. So find out yourself. This entails contacting Companies House by visiting www.companieshouse.co.uk  or by ringing 0303 1234500. Once you know what problem is in front of you, you can then set about trying to tackle it.

So who gets what?
Once again, do your homework. Find out who or what has first claim on cash from insolvency companies. The order goes something like this. Secured creditors get first crack if the bust firm borrowed cash secured on either assets or property. Insolvency practitioners stand second in the queue. Obviously, they won’t do the job if they aren’t paid. Staff come third. Under the Insolvency Act 1986, staff are entitled to their outstanding salary for the four-month period before the insolvency, but up to a ceiling of £800. They are also entitled to up to 6 week’s holiday pay and certain pension payments. Then, it’s everyone else’s turn. These claimants include their customers, Inland Revenue employees and additional cash to staff, etc.

Don’t dilly-dally
When a valuable customer goes bust, the domino effect can be rapid and you risk going under as well. So whatever you do, don’t do nothing. Difficult decisions need to be made – and fast.

Credit card safeguarding
If things go awry, then paying by credit card affords you additional protection, compared to paying through cheque or cash.

Deal with bad debts
Sensible SMEs will be covered by sound business insurance. This means you can lodge an immediate claim for any cash you may be owed.

Do the maths
The bust customer is your most important trading partner. So work out when it means in black and white for you. Examine your short-term money position. See if you can substitute the business you have lost somewhere else.

Look at the impact on staff retention
Will losing this customer mean you will have to lose staff too? The best policy, if you do have to make employees redundant, is to cut just once but deeply.

Recruit your own insolvency practitioner
One of these can take a lot of the hassle out of the process. They are specialists in their field and know enough to take the entire case on for you.

Actively seek to get your particulars returned
This means monies owed for materials and goods for which you have not yet been paid. Take the initiative. Insolvency practitioner Julie Palmer says you can drive round the bust firm with a van and sort it yourself without recourse to sometimes expensive legal advice.

Try and secure more cash
Consider discounting to get more money in. Do anything you can not to put your business at risk.