When a Customer Goes Under: Protecting Your AR When Clients Enter Administration or Liquidation

# When a Customer Goes Under: Protecting Your AR When Clients Enter Administration or Liquidation

Australian business insolvencies have been running at elevated levels for three consecutive years. FY2025–26 saw 14,152 companies enter insolvency for the first time — and while that represents a slight improvement on FY2024–25's 14,722, it remains well above pre-pandemic averages. Construction continues to account for more than a quarter of all insolvencies, followed by accommodation and food services, retail, and professional services.

For any B2B business extending credit to customers in these industries, the question is not whether a customer will eventually enter administration or liquidation — it is whether you are prepared when it happens.

The Moment You Find Out Matters More Than You Think

When a customer enters voluntary administration, a liquidator or administrator is appointed and takes control of the business. From that moment, your position as an unsecured creditor is largely fixed. The actions you take — or fail to take — in the hours and days that follow can materially affect your recovery.

The first thing to do when you hear a customer has entered administration is to stop supply immediately. Goods or services provided after the appointment of an administrator are new debts — they do not automatically get paid ahead of the existing debt, and they increase your exposure.

The second thing to do is submit your proof of debt. The administrator will write to creditors with a deadline. Missing that deadline is one of the most common and most costly mistakes unsecured creditors make — it can result in exclusion from any distribution entirely.

What You Are Actually Entitled to Recover

As an unsecured creditor, your realistic recovery rate in a liquidation is low. Secured creditors — banks and lenders with registered security interests — are paid first. Then employee entitlements. Unsecured trade creditors typically receive cents in the dollar, if anything.

There are two situations where your position is better than unsecured:

• **Retention of title (ROT) clauses.** If your terms of trade include a properly drafted retention of title clause and you can identify and reclaim your specific goods before they are used or sold, you may be able to recover them rather than making a claim as an unsecured creditor. ROT clauses must be registered on the PPSR (Personal Property Securities Register) to be enforceable against an administrator. Unregistered ROT clauses are worth very little in practice.
• **PPSA security interests.** Businesses that have registered a security interest on the PPSR — even for receivables, not just physical goods — sit in a better position than unsecured creditors. If you are regularly extending significant credit to customers, PPSR registration should be part of your credit policy.

The Warning Signs That Appear in AR Data First

By the time a customer formally enters administration, the signals have usually been present in your AR data for months. The most reliable early indicators are:

• Increasing days to pay across successive invoices
• Broken or renegotiated payment arrangements
• Partial payments against full invoices
• Sudden silence — calls not returned, emails not answered
• Requests to extend credit limits or defer payment without explanation

Automated AR systems surface these patterns in real time. A customer whose payment behaviour is deteriorating will show up in your collections workflow long before the appointment of an administrator makes the news.

Tightening Credit Before the Appointment

When you identify a customer showing distress signals, the right response is immediate credit review — not patience. Reduce or suspend their credit limit. Require payment of overdue balances before releasing new orders. Move to pro forma terms if necessary.

Finance teams that act on early warning signals typically reduce their exposure by 40–60% before a customer formally enters administration. Finance teams that wait for official confirmation typically collect at the rate available to all other unsecured creditors.

What to Do on the Day

• Stop supply immediately.
• Contact the administrator directly — get their name, firm, and the correct address for proof of debt lodgement.
• Calculate your total exposure including all outstanding invoices, unearned credits, and any deposits held.
• Identify any goods on site that may be recoverable under ROT — act fast, as administrators move quickly to realise assets.
• Lodge your proof of debt before the deadline — not on the deadline, before it.
• Attend the creditors meeting. You have a right to vote and to question the administrator's report.

The Broader Lesson for Credit Management

At 14,000+ insolvencies per year, the Australian business environment requires active credit risk management — not just credit assessment at onboarding. Customers whose financial position was sound 18 months ago may not be sound today. Annual credit reviews, real-time monitoring of payment behaviour, and clear escalation procedures are not optional extras for businesses trading on credit terms. They are the minimum requirement for protecting cash flow.

Kuhlekt includes credit risk monitoring, payment behaviour tracking, and early warning workflows as part of its standard AR platform. If one of your customers entered administration tomorrow, would your team know what to do in the first hour?