Secured vs Unsecured Trade Credit

Secured versus unsecured, in plain terms

An unsecured creditor has only a contractual right to be paid. If the customer fails, you join the queue of general creditors and share whatever is left after secured and priority claims are met — which is often very little. A secured creditor, by contrast, holds rights over specific assets, putting them ahead of unsecured creditors for the value of that security.

For a trade supplier, the most common form of security is over the goods you supply, through retention-of-title terms backed by a registration. The practical effect is significant: in an insolvency, secured suppliers can claim their goods or their value, while unsecured suppliers frequently recover cents in the dollar. Knowing which side of that line you are on should shape how much credit you extend.

Retention of title and the PPSR

Retention-of-title (ROT) clauses say that goods remain yours until paid for in full. To be effective against other creditors and in an insolvency, that interest generally needs to be registered on the Personal Property Securities Register (PPSR). An unregistered ROT clause can be worth far less than suppliers assume.

Registration is a procedural step, but the details and timing matter, and getting them wrong can leave you unsecured despite the paperwork. For the fundamentals, see the academy lesson on getting paid on time and your terms of trade. This is general information, not legal advice — security registration is an area where professional guidance is wise.

Why unsecured creditors lose out

When a company is wound up, the proceeds of its assets are distributed in a set order. Secured creditors and certain priority claims are paid first; unsecured trade creditors rank behind them. By the time the queue reaches general suppliers, the pool is often exhausted.

This is why a debt that looked perfectly safe on paper can return almost nothing once a customer collapses. It is also why prevention — sound limits, prompt follow-up, and early escalation — matters so much for unsecured suppliers. You cannot improve your ranking after the fact, so the time to act is while the customer is still trading and an account is merely slow.

Moving toward secured credit

You can improve your position before trouble strikes:

• include and register retention-of-title terms for goods you supply;
• take a director's guarantee for higher-risk accounts;
• require deposits or part-payment to reduce the unsecured balance;
• keep credit limits tight so any single failure is survivable.

None of these is a silver bullet, but together they shift more of your exposure onto firmer ground. And where you are unsecured and an account fails, prompt recovery is your best remaining lever — Merion pursues overdue commercial debts compliantly and commission-only. To discuss your position, contact us.