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What do you do if your big customer goes bust?

Posted: 28 Nov, 2022

Earlier this month, Made.com, an online furniture retailer that performed strongly during the pandemic, entered administration. The news has made big headlines in the UK because of the retailer’s sharp and unexpected decline. Only last summer Made.com was valued at £775 million and the it dreamt of becoming the ‘new IKEA’ after floating on the London Stock Exchange.

Shortly before that in April 2021 it announced that it has signed a deal to more than double the size of its warehouse space, adding 350,000 sq ft.

But as Britain emerged from the pandemic the company ran in to trouble and out of cash. Supply chain disruptions affected its operations and the UK’s economic downturn stopped its customers from shopping, leaving it holding too much stock.

Now, Next has agreed to buy the Made.com brand, website and intellectual property for £3.4 million. Staff, however, were not included in the deal which means about 400 people will lose their jobs. Stock inventory also wasn’t included in the deal and is due to be sold off by John Pye Auctions towards the end of this month.

What happens to the suppliers?

But when a large company like Made.com goes bust, it’s not just the staff who suffer, but also the suppliers. And in the case of Made.com, rather than dealing with a handful of suppliers, they worked directly with more than 200 factories. As a company, they focussed on small, design led suppliers and it is certain that many of these suppliers will be facing a difficult situation following Made.com’s collapse.

While for some, Made.com will have just been one among a number of suppliers and they may be able to write off the debt, for others, it may have accounted for a significant portion of revenue and if they’ve been left with money owing, they may rightly be very worried and stressed.

What to do if your big customer goes bust

Like Made.com’s suppliers, any business that supplies goods or equipment to customers on credit should be aware of the actions they must take in the event of a big customer going bust in order to secure the best returns for their business. Here is a brief list of the key actions to take in the immediate aftermath of the failure of a customer. 

Speak to the administrators

  • When a customer goes bust, suppliers first need to find out who the administrators are and you can do this by either asking your client, checking Companies House or looking it up in the London Gazette.
  • Speak to the administrator’s staff member assigned to deal with suppliers and make sure you’re on the list of creditors by filling out a ‘Proof of Debt (POD) form.
  • Ask what the administrators are hoping to achieve and if they expect a sale of the business or an orderly wind down of the company’s operations.
  • Ask if they expect to pay a dividend to unsecured creditors such as your business and when any Meetings of Creditors will be held.
  • If the company still has goods that you supplied, ask the administrator if you can recover these goods or get confirmation that they will be paid for.
  • If you believe that you own something in the company’s possession and have a 'Retention of Title' clause in your Terms and Conditions, then give the administrator full proof of ownership and be prepared to identify what you are claiming. If you don’t act quickly on this point, the administrator may assume the goods/equipment belong to the company and they could be sold to raise funds.

Speak to your insurers

  • If you have a credit insurance policy, look at the terms, notify your insurers of any potential claim, and ensure that your business complies with the terms of the policy.
  • Don’t take any steps or agree anything with the administrators that could invalidate your policy.

Cancel commitments (if possible)

  • Review your orders with your own suppliers and if no longer required, see if you can mitigate your losses by cancelling the order. Even if the terms of your contracts with your suppliers don’t allow for cancellation, speak to them and they may be willing to negotiate given the circumstances.

Shore up your cash flow

  • Even if the administrators think a dividend is likely to be paid, it is likely to be pennies on the pound and could take months or even years for it to be paid out. Work out how much of a toll this will take on your turnover and profits. Plan for the worst and look at how you can deal with any short-term funding requirements. Is your lender prepared to lend to you? Can you negotiate revised payment terms with your own suppliers? Can you negotiate a ‘time to pay’ arrangement with HMRC? Can you sell any unused or underutilised assets to generate cash?
  • If it looks like redundancies may be necessary, as hard as it is, be realistic and work out how much you need to cut from your outgoings and how many salaries that will equate to. It is always better to make any redundancy announcements in one go so as to not keep the remaining staff on edge for months to come, worrying that they will be next. Alternatively, if you are confident the trouble will pass, speak to your staff, letting them know the situation. They may be willing to take a temporary pay cut or reduce their hours until the company is back on firm feet.

Communicate with your own stakeholders

  • Keep an open dialogue with your own stakeholders, including any investors, partners, lenders and suppliers. They are going to be worried about the ripple effects and remaining in good communication should help to reassure them and is likely to make them more supportive of your forward strategy. It is possible that some suppliers may respond by panicking and tightening their own credit terms, but you have to make the call on how much you communicate with them based on your relationship. With a high-profile collapse like Made.com, suppliers will have no choice but to speak with their stakeholders who will already be aware that trouble has arisen.

Consider your viability

  • Finally, it’s important to realistically consider your business’s viability with the loss of this customer. If you are at all worried, engage with a professional advisor as soon as possible. Turnaround professionals are ideally placed to help in situations like these and will try to help you save your business.

TMA UK is part of TMA, a global organisation that represents the interests of turnaround professionals as its members who have the skills needed to assist companies in challenging times. If you need assistance, please contact our helpline on 0844 804 0116


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