The following Commercial guidance note provides comprehensive and up to date legal information covering:
How a company manages its debtors can be the difference between whether a business survives or fails. Many businesses, particularly those who rely on a few large customers/suppliers, can topple very quickly if one of their customers/suppliers goes under themselves, or gets into such difficulties that they are unable to pay their ongoing debts on time. A build-up of smaller debts can have the same effect, so how a business manages its debtors both before and during the insolvency of a customer/supplier is vital.
Once a company has entered a formal insolvency process, the creditor's influence on whether they get paid or not reduces dramatically. It is much harder to recover money owed at that point, due to the order of priority of payment to creditors that operates under the Insolvency Act 1986 (IA 1986). See Order of payment—overview. Unsecured creditors tend to fare worse in a formal insolvency situation, and can often expect little or no return. This may increase if there is some sort of rescue process under way, but by far the best way of protecting money is to ensure there is adequate protection in place in the first place.
There is no substitute for effective credit control, and putting measures in place that might protect a business in the event of the insolvency of a customer/supplier is essential.
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