Your client goes bankrupt: what to do with your outstanding invoices

Step one: file your claim with the trustee

On the declaration the court appoints a trustee who manages the estate; their name is in the public insolvency register or the first bankruptcy reports. Email the trustee your outstanding invoices, the underlying agreement and the total: that registers you as an unsecured creditor. It costs nothing and is quickly done. Be realistic about recovery though: estate costs and preferential creditors such as the tax authority are paid first, and in many bankruptcies little to nothing remains for unsecured creditors. Filing still pays: sometimes a distribution follows years later, and you need it for your own records.

Work in progress: stop or continue?

Work performed after the bankruptcy date is not simply paid; it too becomes a claim on an empty estate. So stop current work immediately and deliver nothing more without new arrangements. If the trustee wants you to finish something, for instance because of a restart, ask written confirmation that your fee is an estate debt, paid before ordinary creditors, or require prepayment. In a restart the new party is a new client: old debts do not transfer automatically, so negotiate continuation freely, but do not assume your old invoice is part of the deal.

You do recover the VAT in any case

The VAT you already remitted on the unpaid invoices comes back once non-payment is certain. In a bankruptcy that is usually clear when the trustee announces no distribution for unsecured creditors, and the right arises at the latest one year after the invoice due date anyway. You process the refund in your regular VAT return; the details are in reclaiming VAT on a bad debt. For income tax you write the receivable off as a loss, lowering your profit.

Limiting the damage next time

You can never rule out a client's bankruptcy, but you can shrink your exposure:

• Invoice short and often: weekly or per phase instead of everything afterwards. Tight debtor management caps what can ever be outstanding.
• Ask a deposit on large projects or work with instalments in advance, certainly with new or shaky clients.
• Watch the signals: ever-later payments, excuses and staff turnover at the client are classic omens; see client not paying for the approach before a bankruptcy.
• Include retention of title and clear suspension rights in your terms, so you may stop delivering on default.

Frequently asked questions