A Customer's Company Is in Financial Trouble

The scenario

Nothing has formally happened — there is no administrator, no court notice — but the pattern has shifted. Payments that used to arrive on time now trickle in late. Promises slip. The finance contact you dealt with has left or stopped replying. Maybe the customer has suddenly placed a larger-than-usual order on credit. Individually, any of these could be nothing. Together, they look like a business under pressure.

This is the window where action matters most. Once a formal insolvency process begins, your options narrow sharply and recovery rates fall. Acting while the customer is still trading, and still able to pay, gives you the best chance of getting your money — but only if you read the situation correctly and do not overreact to a false alarm.

What's really going on

Distress almost always shows in behaviour before it shows in the accounts. A customer who is juggling cash flow pays the suppliers who are essential or insistent and stretches everyone else. Broken promises and shifting excuses are the most reliable early tell. A sudden spike in credit orders can mean a business stocking up before it fails. Disputes raised only after the due date can be a way to buy time.

But not every late payer is failing. A major customer of theirs paying slowly can ripple down to you without any underlying insolvency. The skill is to verify before you change how you treat the account, so you protect yourself against a genuine failure without torching a relationship over a temporary blip.

Your options

• Verify the position. Check the company's status on the ASIC register, look for published notices, and review your own payment history for a clear trend.
• Tighten terms. Reduce the credit limit, move new work to upfront or deposit, and shorten payment terms.
• Work the oldest balances first. Focus collection effort where the exposure is greatest and the debt is ageing fastest.
• Confirm your security. If you hold a guarantee, retention of title or a PPSR registration, check it is current and valid.
• Escalate early. Where concern is real and contact is failing, move the debt to recovery before the position deteriorates.

Recommended approach

Verify first, then act proportionately. A quiet check on ASIC and an honest look at your own ledger usually tells you whether this is a genuine decline or a one-off. If the concern is real, tighten the terms on anything new immediately — there is rarely a good reason to keep extending interest-free credit to a customer you believe is failing — and concentrate your collection effort on the oldest, largest balances. Confirm any security or guarantee is current while you still have leverage.

Speed matters more than perfection here. A debt that is collectable today may be worth little once a formal appointment is made. If contact is breaking down, refer the debt for recovery rather than waiting, and read up on distress signals and protective steps in the Academy lesson library so the next early warning is acted on faster.

What to avoid

Do not keep supplying a struggling customer on open credit out of loyalty — loyalty does not survive an insolvency, and unpaid stock or services rarely come back. Avoid the opposite mistake of reacting harshly to a single late payment without verifying; you can lose a good customer over a temporary blip caused by someone further up their chain. Never assume you will be told when a customer fails — monitor ASIC and published notices yourself. This is general guidance, not legal, financial or tax advice; insolvency is technical and time-sensitive, so seek qualified advice on your specific position.