Today’s economy isn’t exactly what you can call thriving. Most businesses today can experience some level of insolvency, it’s probably more rare to find a business that hasn’t been touched by this to some degree. There are many reasons why a business can suffer from insolvency, bankruptcy and money loss. A lot of companies are dependent on a small number of big clients to sustain the profitability of their business, but relying on a small number of clients can be a risky proposition, as your business can be over-reliant on them.
So when your main client has gone bust and owes you money, what can you do?
You probably have more options than you think. The first thing to do is a don’t – that is ‘don’t panic!’ Examine your options. Your client’s business would have to go under liquidation proceedings, and a liquidator would have been appointed to sell your client’s assets. The money raised in this liquidation is given in order of priority to indebted employees, then the liquidator, everything else is divided among unsecured creditors, though unfortunately by this stage the pot is often small. These creditors often end up with only a small percentage of the debt owed to them.
Instead of focusing on your major client’s debts, put your focus on what you need to do to save your own business. If your contract with your client permits you to do so, take back all unpaid-for goods that you have supplied to them. It may lessen the amount of debt they owe you, as well as help regain assets for your business.
If your business has creditors, you may need to ask for a change in your payment terms. Explain the reason clearly, and see to it that you arrive at a fair and workable agreement with them. It will take longer for you to repay your creditors, but if you act correctly your business may not have to suffer insolvency.
Very few businesses can run without employees. These staff members often know your business as well, and sometimes better than you do, so keep them informed and listen to their suggestions and concerns. However your business may now have some extra staff that can be surplus to your current requirements. Though it’s hard to do, the termination of surplus employees needs to be attended to in order to save your business. Dialogue is key to making this as pain-free as possible for all concerned. This could also mean your remaining employees have extra work to do, and you may have to compensate them more because of this.
The whole world is currently experiencing economic recession, and this is causing a new level of challenges for lots of businesses. It’s important to select whom you do business with carefully, and put well thought-out agreements in place to protect your business as much as you can. Slow and steady growth ensures your business of a better chance of longevity in these difficult times.