Early Warning Signs of Insolvency
Spotting that a customer is in trouble early gives you the best chance of being paid before others act.
What you'll learn
- The common early signals of debtor distress
- How to verify concerns without overreacting
- What protective steps to take early
- Where insolvency leaves you as a creditor
6 min read
Behavioural red flags
Trouble usually shows in conduct before it shows in the accounts. Watch for:
- broken payment promises and shifting excuses;
- part-payments made without explanation;
- disputes raised only after the due date;
- requests to extend terms or pause direct debits;
- key finance staff leaving or going quiet.
One signal can be innocent. A cluster appearing together deserves attention.
Financial signals
If you have visibility, look for a stretching debtor-days trend, returned payments, or a customer who suddenly orders far more on credit than usual — sometimes a sign of stocking up before failure. Public clues include adverse credit data, court filings, or a winding-up notice. None of these is proof on its own, but together they sharpen the picture.
Verify before you act
Confirm concerns before changing how you treat a customer. Check the company's status on the ASIC register and look for any published insolvency notices. A quiet conversation often explains a temporary blip — a major customer paying late, not genuine failure. Verifying protects the relationship and stops you reacting to a false alarm.
Protective steps
Where concern is real, tighten terms, reduce credit limits, ask for upfront payment on new work, and act on the oldest balances first. If you hold security or a guarantee, confirm it is current. Acting decisively while a debt is still collectable matters — you can refer a debt before the position deteriorates further.
A note on advice
This is general information only, not legal, financial, or tax advice. Insolvency is technical and time-sensitive, so seek qualified advice on your specific circumstances before acting.
Key takeaways
- Distress usually shows in behaviour before the numbers move.
- Act early — recovery rates fall sharply once insolvency starts.
- Verify via ASIC before drawing firm conclusions.
- Prioritise the oldest balances and confirm any security you hold.
Frequently asked questions
Can I still recover if my customer is insolvent?
Sometimes — through proofs of debt, guarantors, or security you hold. Prospects are usually limited, so acting early is far better. General information only.
What is an unfair preference?
A liquidator may seek to claw back certain payments received shortly before liquidation. Seek advice if this is ever raised with you.
Should I keep supplying a struggling customer?
Usually it is wise to tighten or pause credit and require payment upfront until your confidence returns.
Knowledge is good. Getting paid is better.
Merion's team recovers what you're owed — commission-only, no upfront fee.