Few things sting like a customer who owes you money and then files for bankruptcy. The work is done, the invoice is real, and suddenly a court or an administrator is involved. Acting quickly and calmly makes a real difference to what you recover. This Q&A covers the practical steps for a small business. It is general information, not legal advice, and the rules differ by country, so confirm the details with a local adviser.
How do I confirm the customer is really insolvent?
Do not rely on rumours or a bounced payment. Check the official insolvency register or gazette in your country, or the notice sent by the court or the appointed insolvency practitioner. Note the type of procedure (liquidation, reorganisation or administration), the date it opened and who now controls the business. From that date you normally deal with the practitioner, not the owner, and you generally must stop chasing the customer directly.
What is a proof of claim and when do I file it?
A proof of claim is the formal statement of what you are owed, sent to the insolvency practitioner or the court. If you do not file it, you usually receive nothing. Deadlines are strict and sometimes short, so find the date in the notice and put it in your calendar. A good claim includes:
- A statement of account listing every unpaid invoice, credit note and any interest.
- Copies of the contract, purchase orders and proof of delivery.
- Any security or retention-of-title rights you rely on.
What kind of creditor am I?
Creditors are paid in a set order. Secured creditors, such as a lender with a charge over assets, come first. Certain preferential claims, often employee wages and some taxes, come next. Most small suppliers are unsecured and are paid last, from whatever is left, often only a small fraction of the debt. Knowing your rank sets realistic expectations early.
Should I keep supplying on credit?
Almost never. Stop extending credit the moment you learn of the insolvency. If the business keeps trading under an administrator, supply only against payment in advance or on delivery, and get the terms in writing. Do not ship new goods on the old payment terms hoping the old debt will be cleared.
What is preference or clawback risk?
Payments you received shortly before the insolvency can sometimes be challenged by the practitioner and have to be returned, if they favoured you over other creditors. Look-back periods vary, often three to six months and longer for related parties. Regular payments for goods delivered on normal terms are usually safer than unusual ones, such as a large lump sum after you threatened to stop supplying. Keep records showing the payment was routine, and speak to an adviser before you spend money you may have to return.
Does retention of title help?
If your terms of sale include a retention-of-title clause, meaning the goods stay yours until paid, you may be able to reclaim goods that are still identifiable and unsold. The clause must have been agreed before delivery. It will not help for services, or for goods that were already used or resold. If you think it applies, notify the practitioner quickly and list the goods with their invoices.
How do I track the receivable?
Keep one clear record: the amount, the date you filed, the practitioner's contact details, deadlines and every message exchanged. Stop routine reminders to the customer, and flag the account so no new orders slip through. If you already manage receivables in FulcrumGrid Collection, you can mark the account as insolvent so automated reminders stop and keep the claim details and notes next to the invoices. For one or two cases a spreadsheet works too; what matters is that someone owns the follow-up.
When do I write it off?
Not on the day the customer files. Keep the claim open while the process runs, and with your accountant set aside a provision for the amount you expect to lose. Write the debt off when the practitioner confirms there will be no payout or the case closes. Many countries allow tax relief on bad debts, usually with documentary conditions, so ask your accountant what evidence to keep.
Afterwards, look for lessons: credit limits for new customers, deposits for large orders and early warning signs such as slower payments. The best protection is noticing trouble before the filing.
Frequently asked questions
Can I still contact the customer after they file for bankruptcy?
Usually not to demand payment. Most systems pause individual collection once a procedure opens, so deal with the insolvency practitioner instead. Pressuring the customer directly can breach the rules.
How much of the debt will I get back?
It depends on the assets and on your ranking. Unsecured suppliers often recover only a small share, and payouts can take months or years. Some cases pay nothing.
Do I have to return a payment I received before the bankruptcy?
Possibly. If the payment favoured you unfairly within the look-back period, the practitioner may ask for it back. Ordinary payments on normal terms are less likely to be challenged. Get advice if you receive a letter.
Do I need a lawyer for a small unpaid invoice?
Not always. For modest amounts, filing the claim yourself is often enough. A short consultation is worth it for large sums, retention-of-title claims or a clawback demand.
FulcrumGrid Collection
Keep unpaid invoices from slipping through
FulcrumGrid Collection helps you track receivables, pause reminders and keep claim details in one place, so a customer's insolvency does not catch you off guard.