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Business trouble because a client is insolventIn the current economic climate, a number of businesses find themselves in financial difficulty because one of their major clients has gone bust. When this happens there are a number of things that must be done quickly to save the business. The situation where one of your major customers has become insolvent while owing you money is all too common in today's economic climate.. If your client has gone into liquidation, then their business will stop trading. One of the first jobs of the liquidator will be to sell the company's assets. If any money is raised in this way, the liquidator's fees and some employee's payments will be paid first. Any remaining funds will be shared between the outstanding unsecured creditors. However, where this list is long, the amount of return to each creditor is likely to be a very small percentage of what they are owed if anything at all. Given that the possibility of getting paid any of the money you are owed is very slim, it is far better to focus your energy on how you can save your business. There are some key operational actions you should consider:
- Reclaim Goods Supplied Check your contract to see if you are allowed to reclaim any of the good you have supplied to the failed business. If you are allowed to do this, you should act swiftly.
- Renegotiate your own payment terms Speak to your own creditors and try to negotiate longer payment terms with them. After all, the longer you have to pay your debts, the more time you will have to collect other money in.
- Cut overheads One of the main costs to any business is generally its staff. If you have lost a major client, it may be a long time until you can build up replacement business. In the mean time, it may be wise to reduce your staff overhead. This is not easy and there is always the worry that you may not be able to get back key staff if business picks up. However, it is often better to take this risk to avoid you business being forced into closure.