What to do if a customer goes bankrupt and you still have outstanding invoices?

As an entrepreneur, it is one of your biggest nightmares: a client goes bankrupt while you still have outstanding invoices. Unfortunately, this is not a rare scenario for companies in the SME sector. A bankruptcy can have major financial consequences, especially if there are significant amounts at stake. In this blog, we discuss what you can do as an entrepreneur if you end up in this situation and how you can limit the damage.

The impact of bankruptcy on outstanding invoices

If a client goes bankrupt, it essentially means that the client is no longer able to meet their financial obligations. In many cases, this leads to the freezing of all payments, including those to you. This can be very frustrating, especially if you depend on the payment of those invoices for your own cash flow.

Submitting a claim to the liquidator

The first thing you must do when a client is bankrupt is submit your claim to the liquidator (curator). The liquidator is a person appointed by the court who is responsible for handling the financial obligations of a bankrupt company. It is important to do this as quickly as possible, because the liquidator must create an overview of all creditors, and you are likely not the only one.

When submitting the claim, ensure that you have all relevant documentation in order. Think of:

• Invoices
• Payment reminders and formal notices
• All correspondence with the client

It is important to realize here that the better you can substantiate the case, the greater the chance that your claim will be recognized.

Be realistic about the payout

When a client goes bankrupt, it is important not to have high expectations regarding the payout of an outstanding invoice. Even if the proof for the invoice is convincing, the chance that the full amount is paid is usually small.

In the event of bankruptcy, creditors are divided into different groups. If there is still money to distribute, these groups are paid out in a certain order. For instance, preferential creditors, such as the tax authorities and the company's employees, take precedence over other creditors. As an 'ordinary' creditor, you are often at the back of the line, and it is a matter of waiting to see if there is any money left to pay your invoice. Therefore, there is a chance that you will receive only a small portion or nothing at all.

Although this is often discouraging, we still recommend that you always submit your claim to the liquidator. The liquidator will attempt to convert any assets of the bankrupt company into liquid assets (money). If the liquidator succeeds in generating sufficient liquid assets, the chance that your claim is paid is also greater. Moreover, a partial payment is always better than nothing.

Check for retention of title

If you have delivered goods to a client who is bankrupt, and that client has not yet paid, it is sometimes possible to reclaim these. This is called 'retention of title' (eigendomsvoorbehoud) and can be a way to limit losses due to bankrupt clients. For instance, the reclaimed goods could be resold to someone else.

There are some important rules for this. For example, the retention of title must be clearly established in advance in the general terms and conditions. Furthermore, these terms must have been shared with the client beforehand. It must also be clearly determinable that the goods originated from you. Without these points, it can be difficult to get your goods back after a bankruptcy.

Prevent damage in the future!

Although you often cannot prevent a client's bankruptcy, there are a number of measures you can take to protect your company against the negative consequences.

Credit check

Are you in doubt about the financial position of a (potential) client? Or would you rather be safe than sorry? You could have a credit check performed. With a credit check, you receive information in advance about the financial situation and possible dangers. And does your client seem to be struggling? Then you could, for instance, set different terms, such as payment in advance. That way, you know the risks better and reduce the chance of financial damage due to a bankrupt client.

Good accounts receivable management

If a client is facing financial challenges or perhaps threatens to go bankrupt, it is important to stay on the ball. This means you should not wait too long to contact the client when the due date has passed and a payment remains outstanding. Send a payment reminder or formal notice in time and seek contact to find a solution for the payment arrears. Additionally, it is important to keep in mind that clients do not like to talk about such matters voluntarily. They are more likely to stay silent about it or come up with an excuse. Do not let yourself be misled by this.

Do you want tips about your accounts receivable management, or do you have other questions? You can always contact one of the incasso.nl specialists without obligation.

Stay in contact and recognize signals

It is important to stay in contact with the client, even if there are no pending sales. That way, you get a good picture of what is happening at a client's company. Potential obstacles and problems also come up for discussion sooner this way. Recognize the red flags and take measures in time if necessary.

Timely transfer

If you suspect payment problems with a client, it is also important that you transfer the claim in a timely manner. A collection agency like incasso.nl is specialized in collecting claims. Our methods aim to get your invoice paid as quickly as possible. Especially in the case of an impending bankruptcy, it is important that the claim is handled with the right tone and approach. Therefore, transfer your invoices to incasso.nl in time, especially if you suspect the client may have financial problems or might go bankrupt.

Conclusion

If a client goes bankrupt while there are still outstanding invoices, this can cause a lot of stress and uncertainty. By acting quickly and effectively, such as by submitting your claim to the liquidator and checking for retention of title, you can attempt to limit the damage. Additionally, it is important to learn from this experience and take measures to better protect your company against such risks in the future.

With good accounts receivable management and timely transfer to the collection agency, you can limit the impact of future bankruptcies and safeguard the financial health of your company.

Oh, and one final tip! If the invoice is ultimately not paid at all, do not forget to write off the invoice correctly in your administration. There is a good chance you have already paid the VAT due on the invoice to the tax authorities. You may reclaim this VAT on a subsequent VAT return.