Chances are, at some point in the life of your business, at least one customer is going to fold owing you money.

The first stage is realising that you need to take action. If you're reading this, you have probably reached this point. Seeking professional advice is now a must and in many cases, creditors will feel most comfortable talking with a familiar figure, such as their accountant or lawyer, before taking any formal action.

Trade creditors (also known as unsecured creditors) usually rank behind every other class of creditor in the distribution of a failed company's assets. Top of the list are secured creditors, who hold security over a debtor's assets in the form of a charge (also referred to as a mortgage or debenture).

Security over a debtor's assets can only be held by prior agreement which may be classed as a fixed or floating charge. Even secured creditors will only get their share of the assets after the costs of realisation and professional fees have been met. If there are any funds left after fixed charge creditors have been paid, then it is the preferential creditors turn to be paid out.

There are two classes of preferential debts in corporate insolvencies being primary and secondary. Primary ones are made up of several different types of debt but the most common are debts owed to employees such as wages and holiday pay. Secondary preferential debts rank after primary ones and include liabilities for certain taxes including VAT and deductions to be made from employees’ salaries such as PAYE, NICs, Construction Industry Scheme deductions and student loan repayments.

This change means that unsecured creditors are now less likely to get something back.

As for shareholders, they are entitled to anything that's left after everyone else has been paid - but a payout to them is incredibly rare.

If you suspect that your customer is going to leave you with a bad debt, Hodgsons may be able to investigate this for you and advise on suitable action to protect your interests.

If you have been made aware that your customer is insolvent, and a formal insolvency procedure is proposed, we will represent you in dealings with the relevant insolvency procedure including voting on your behalf, free of charge. It is important that you are correctly represented so that nothing is agreed that may be to your detriment. We will provide you with a report of all such votes, normally including an indication of the likelihood of a dividend payout.

If you are asked to vote on a Company Voluntary Arrangement (CVA), you may be tempted to vote against it purely because you have been badly let down. Think twice - the proposal will only have been put forward if an independent insolvency expert believes it has a good chance of success. It will also usually offer you the opportunity to get back a great deal more (especially if you are an unsecured creditor) than in other insolvency procedures. However, if you would like independent advice about the viability and other modifications that may be made to the proposal, Hodgsons will provide this service free of charge. Finally, it is important to understand that a CVA will keep someone in business who still needs your product or service - even if you insist on cash on delivery in future.