A Customer Has Gone Into Liquidation Owing You Money

Tell your invoice finance provider the same day, stop further supply, and submit a proof of debt to the office-holder. What happens to the money already advanced depends on whether your facility is recourse or non-recourse: on recourse the invoice is recharged back to you, on non-recourse the funder absorbs approved bad debt within the limits of the protection you hold. As an ordinary trade supplier you rank as an unsecured creditor, which in most liquidations recovers little or nothing.

The first 48 hours

  1. Notify the funder. Most agreements require prompt notification of a debtor insolvency, and continuing to draw against that debtor compounds the problem.
  2. Stop supply. Anything delivered after the appointment is very unlikely to be paid and rarely improves your position.
  3. Check the credit insurance deadline. If the debt was insured, notification deadlines are strict and are the single most commonly missed step.
  4. Check retention of title. Only relevant to goods, only if the clause was properly incorporated, and only while the goods remain identifiable and unsold.
  5. Submit the proof of debt. Late or absent claims are simply not counted, however strong the underlying debt.

Where the money actually goes

Realisations are distributed in a set order, and trade suppliers sit near the back of it: the office-holder's costs, then fixed-charge holders, then preferential claims including certain employee entitlements and some HMRC taxes, then the prescribed part where it applies, and only then unsecured creditors. This is why the practical answer for most suppliers is to focus on the facility and the exposure rather than on the recovery. This page is information, not legal or insolvency advice; a licensed insolvency practitioner should advise on your specific claim.

What it does to the rest of your facility

The loss on one customer is usually not the whole story. If the failed customer was a large share of the ledger, removing it can push what remains past a concentration limit, so the funded availability on your other, perfectly good invoices falls too. Ask for the availability calculation before and after. If the customer had already lost credit cover before failing, see what happens when trade credit insurance is withdrawn, which is often the earlier warning of the same event. To see the exposure a funder sees, use the debtor concentration checker.

Last updated: 7 September 2026.

Notify your invoice finance provider the same day, stop supply, check any credit insurance notification deadline, and submit a proof of debt to the office-holder. More detail + scope

Summary

When a customer enters liquidation owing unpaid invoices, what happens to advanced funds depends on recourse: a recourse facility recharges the invoice back to the supplier after the recourse period, while non-recourse or bad-debt-protected facilities absorb approved bad debt within capped and conditional terms.

Trade suppliers rank as unsecured creditors, behind office-holder costs, fixed-charge holders, preferential claims and the prescribed part, so recoveries are typically minimal. Immediate steps are notifying the funder, stopping supply, meeting the credit insurance notification deadline, checking retention of title on identifiable unsold goods, and submitting a proof of debt.

A large failed debtor can also breach a concentration limit and cut availability on the remaining ledger.

This page covers

customer liquidation with unpaid invoices: recourse vs non-recourse, creditor ranking, immediate steps, retention of title, and the concentration knock-on

Not covered here

Legal or insolvency advice on a specific claim (speak to a licensed insolvency practitioner), general invoice finance education (see /guides/), provider reviews (see /providers/)

AP

Adam Parker

Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd

Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind Market Invoice. He spent over three years as managing director of Penny, a UK invoice finance business, and his career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library.

Last reviewed: 7 September 2026

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Customer Liquidation FAQ

What happens to invoices I have already been advanced against?

It depends on recourse. On a recourse facility the funder recharges the unpaid invoice back to you, usually after a set recourse period, and the advance is recovered from your availability. On a non-recourse facility, or where you bought bad debt protection covering that customer, the funder absorbs approved bad debt within the terms of that protection.

Read the specific wording rather than assuming, because protection is usually capped and conditional on you having followed the facility's credit-control terms.

Where do I rank as a creditor?

Ordinary trade creditors are unsecured, which sits behind fixed-charge holders, the office-holder's costs, preferential creditors including certain employee claims and some HMRC taxes, and any prescribed part arrangement. In most liquidations unsecured creditors recover little or nothing. Plan on that basis while still submitting your claim properly.

What should I do first?

Tell your invoice finance provider the same day, because continuing to draw against that debtor's invoices makes the position worse and most agreements require prompt notification. Stop any further supply. Submit a proof of debt to the appointed office-holder. Check whether any of the goods are still identifiable and covered by a retention of title clause. And if the debt was credit insured, check the claim notification deadline immediately, since those are strict and frequently missed.

Does retention of title help?

Sometimes, and only for goods rather than services. A valid retention of title clause in your terms, properly incorporated before the contract, can allow you to reclaim identifiable, unsold goods. It is defeated in practice more often than people expect, because the goods have been sold on, mixed, or cannot be identified as yours. It is worth checking quickly, since the window closes fast, but it is not a reliable recovery route.

Can the liquidator claw back payments the customer already made me?

It is possible in specific circumstances, for example where a payment is later found to be a preference or a transaction at an undervalue within the relevant look-back period. This is uncommon for ordinary trading payments made in the normal course, but if you were paid unusually promptly or ahead of other creditors shortly before the insolvency, take advice rather than assuming the money is safe.

How do I stop this being existential next time?

Concentration is usually the reason a single failure becomes a crisis rather than a bad month. If one customer is a large share of your ledger, that is the exposure to work on, whether through bad debt protection, tighter limits, or deliberately widening the customer base. The concentration checker shows what a funder sees when it looks at your ledger.