If the predictions are to be believed we are likely to see an increasing number of business failures in the next twelve months. Knowing how to deal with the insolvency of a customer, and what your rights are, is going to become increasingly important. In many sectors the last two decades have been a period of unbroken growth, so many managers have simply not had the experience of dealing with a downturn in their working life. Going forward it will be necessary for managers to understand how the insolvency of a customer or contractor will impact on their business and what rights and remedies are available.

Where a customer goes under there are two key issues to be dealt with : making a claim and getting back any goods that have not been paid for. Making a claim is fairly simple. The administrator or liquidator will issue a claim form to creditors to be completed and returned along with copies of unpaid invoices as evidence of the debt. A formal process of adjudicating (accepting) the claim will follow but only if there are sufficient funds available to pay unsecured creditors. In many cases the banks and other secured creditors will have the first call on secured assets often leaving little for other creditors.

The pain of writing off a bad debt can be eased by being able to reclaim goods that have been supplied but have not been paid for allowing them to be resold. Retention of tiles clauses (which retain title in the goods supplied until the invoices have been paid) have become a common feature of supply contracts in the last twenty years. Regrettably many retention of title claims in an insolvency fail because the paperwork isn't tight enough or the paper trail isn't good enough. If you want to protect yourself now is the time to review your terms and conditions to make sure your retention of title provisions are robust and that you are keeping the right records to support your claim.

In an insolvency scenario, you want to make sure that your contract enables you to recover any goods supplied and still held in stock so long as any invoice remains unpaid by that customer. You need to ensure that your retention of title clause covers all sums outstanding and isn't just restricted to the goods supplied on the particular unpaid invoices.

A retention of title claim in an insolvency will also be rejected unless you satisfy the administrator or liquidator that the term formed part of the contract. Having terms and conditions in place, signed up and acknowledged by your customers will all help to make your claim more robust. Unless you are a sole supplier or are supplying a unique product, remember also that being able to identify your stock and being able to distinguish it from similar goods supplies by another supplier will be necessary if your claim is to be upheld. Serial numbers, bar codes and unique labelling can all be helpful in demonstrating that you know your stock if you are required to identify it in an insolvency.

Where the goods being supplied are used as part of a manufacturing process, managers need to be alive to the fact that there is a good chance that the retention of title claim will not survive so you need to keep a tight control on unpaid invoices and consider moving to cash on delivery terms is there is doubt about the manufacturer's ability to pay for your stock.