Your customer has gone into administration: what happens to your invoices and your funding

When a customer goes into voluntary administration, the money it owes you for work done before the appointment is frozen as an unsecured claim. You generally can’t chase it without the administrator’s consent or a court’s permission. If those invoices were financed, your lender will usually pull them out of your funding, and under a recourse facility you may need to repay the advances.

It’s a double hit: income you were counting on stalls, and the facility you use to bridge gaps shrinks at the same moment. The good news is that there’s a clear order of things to do, and the earlier you start, the more room you have.

What does voluntary administration mean for money your customer owes you?

Administration is designed to give a struggling company breathing space while an independent administrator works out its future. ASIC’s guide for creditors explains that unsecured creditors cannot begin, continue or enforce their claims against the company without the administrator’s consent or the court’s permission.

In practical terms:

• invoices for goods or services delivered before the appointment become claims in the administration
• your normal debt recovery steps, letters of demand, collection agencies, court action, are on hold
• you’ll be notified of creditors’ meetings and asked to lodge a proof of debt to vote
• the outcome, a return to the directors, a deed of company arrangement or liquidation, decides what you eventually receive

Work ordered by the administrator after the appointment is treated differently. ASIC says those debts are paid as costs of the administration and the administrator is personally liable for them, provided you supply under a purchase order authorised the way the administrator advises.

What happens to invoices you’ve already financed?

This is where invoice finance owners feel it fastest. Most facilities define invoices from an insolvent customer as ineligible, so the moment the lender learns of the appointment, those invoices stop counting towards your available funds.

Your facility	What usually happens to the customer’s invoices	What you should do
Recourse invoice discounting	Removed from eligible debts; advances must be repaid or covered by other invoices	Call the lender, agree how the shortfall will be covered
Recourse factoring	Lender stops collecting and hands the debt back to you	Lodge your own proof of debt
Non-recourse factoring	Lender may absorb approved amounts under its insolvency cover	Notify within the contract deadline, give it everything it asks for
Selective single-invoice	That invoice is likely to be called back	Check your repayment timeframe

Read your debtor finance or invoice finance agreement for the exact rules. Many contracts require you to tell the lender promptly when you learn a customer is insolvent. Staying quiet and hoping it resolves itself rarely ends well.

If your recourse obligations would leave you short on wages or suppliers, talk to us early. A quick enquiry is enough for a real person to look at your options.

What should you do in the first fortnight?

Speed matters because meetings and deadlines come quickly. ASIC says the first creditors’ meeting is held within eight business days after the administration begins, with at least five business days’ notice.

Days 1 to 3

1. Stop new supply on credit until you’ve spoken to the administrator.
2. Pull together every unpaid invoice, purchase order, delivery record and statement for the customer.
3. Tell your lender, in writing, what’s owed and which invoices were financed.
4. Check whether you supplied goods on retention of title terms and whether that interest is registered on the PPSR. Get legal advice if so.

Days 4 to 10

5. Lodge a proof of debt so you can vote, attaching supporting documents.
6. Attend or follow the first creditors’ meeting.
7. Rework your cash flow forecast without this customer’s money in it.
8. Agree with your lender how any recourse shortfall will be handled, whether by repayment over time, swapping in other invoices or temporary extra security.

Ongoing

9. Decide whether to keep supplying the administrator, on authorised purchase orders only.
10. Watch for the administrator’s report before the second meeting and decide how to vote.

An illustrative example

Illustrative only. A commercial printing business has about $90k owing from a retail chain that enters administration. About $70k of that had been drawn against through a recourse debtor finance facility.

The owner calls the lender the same day. Rather than demanding immediate repayment, the lender agrees to let the shortfall be covered by new invoices over the next six weeks, while reducing available funds in the meantime. The owner lodges a proof of debt, stops credit supply, and accepts a small run of new work from the administrator on an authorised purchase order, paid as a cost of the administration.

To fill the gap left in the facility, the owner also arranges a short-term unsecured loan sized on turnover and bank statements. When a deed is approved some weeks later, a partial dividend follows in due course.

Could you have to repay money the customer already paid you?

Possibly, if the administration ends in liquidation. ASIC’s liquidation guide for creditors sets out the lookback. A liquidator can examine payments you received in the six months leading up to the date the liquidation is treated as starting, and try to recover them as unfair preferences. If the company uses the simplified liquidation process, that lookback shrinks to three months, and recovery is limited to unrelated creditors who received more than $30,000 in total.

There are defences, especially for payments made in a continuing business relationship, but they’re technical. If you receive a demand, get advice from a lawyer who does insolvency work before you respond.

For invoice finance users, a recovered payment can also reopen the financed invoice in your lender’s eyes. Our guide to recourse and non-recourse factoring explains why clawbacks are rarely covered.

Where does an unsecured trade creditor rank?

Usually near the back. In a liquidation, ASIC sets out the order of payment: liquidation costs, then employee wages and super, employee leave entitlements, retrenchment pay, and finally unsecured creditors. Each category must be paid in full before the next receives anything.

Under a deed of company arrangement, the deed itself sets the order, though employee entitlements generally still rank ahead of other unsecured creditors. That’s why returns to trade creditors are often partial and slow. It’s sensible to plan as if the money won’t come, and treat anything that does arrive as a bonus.

How do you stop one customer doing this to you again?

Once the dust settles, look at how exposed you were and why.

• Concentration. If one customer made up a big share of your sales, spread your risk where you can.
• Credit limits. Set limits per customer and review them when orders grow.
• Payment terms. business.gov.au’s guide to what to do when you haven’t been paid starts with reviewing your contract, which is easier when terms are written down from day one.
• Insurance. Trade credit insurance or a non-recourse facility can cover insolvency risk on your biggest customers.
• A buffer. A working capital loan or a line of credit arranged while things are calm is easier to get than one arranged in a crisis.

Lost a big customer overnight? Let’s look at your options

A customer’s collapse can leave a perfectly sound business short of cash for a few weeks or months. That’s a timing problem, and timing problems can often be solved with the right funding while you wait for the dust to settle.

Our enquiry takes about 60 seconds and there’s no credit check when you first enquire. We won’t send your details to a crowd of lenders, so you won’t be fielding calls from strangers while you’re dealing with an administrator. A real person looks at what happened, what’s owed and what you need to keep trading, then calls you. Please be accurate on the form, including the amount stuck in the administration, so we can work out the right fix first time. Unsecured options typically run from $5k to $500k, and property-secured loans from $20k to $5m.

Talk to someone about the gap →