Who pays when the customer fails? The hidden receivables risk hitting company balance sheets

A customer insolvency can turn booked revenue into a working-capital problem almost overnight. With secured lenders reporting rising non-accruals and recent failures exposing unpaid receivables, the question of who ultimately absorbs that loss is becoming increasingly important.

A sale has been made. The revenue has been booked. The invoice has been issued. But until the customer pays, the cash does not exist.

That distinction is becoming increasingly important for companies, lenders and receivables financiers as corporate insolvencies remain elevated and signs of deterioration emerge in secured credit.

The immediate risk is straightforward. When a customer fails, an apparently ordinary trade receivable can turn from an expected cash inflow into an impaired asset, potentially hitting earnings, liquidity and the amount of financing available against a company’s debtor book.

But the consequences can travel much further. A customer failure can affect borrowing-base availability, trigger credit insurance claims, increase lender reserves and expose concentrations that appeared manageable while invoices were being paid normally.

In other words, one company’s financial distress can rapidly become another company’s working-capital problem.

From revenue to bad debt

A recent German case illustrates the transmission mechanism unusually clearly.

On 1 October, it was reported that industrial supplier SBF had cut its 2026 EBITDA forecast after the provisional insolvency of a customer put approximately €1m of outstanding receivables at risk.

SBF said it expected a significant part of the balance to prove uncollectible and anticipated a bad-debt loss of €800,000 to €1m. Its forecast EBITDA range was reduced to €900,000-€1.5m from €1.8m-€2.4m.

The size of the receivable was relatively modest in absolute terms. The effect on expected profitability was not.

That is precisely what makes debtor risk important. A business does not have to become insolvent itself to experience the consequences of another company’s failure. If a material customer stops paying, the supplier can lose both an asset on its balance sheet and the cash it had expected to use elsewhere in the business.

For companies operating with thin liquidity buffers, concentrated customer bases or significant working-capital requirements, the effect can be particularly pronounced.

A wider credit warning is emerging

The SBF case comes as US asset-based lenders are reporting a broader deterioration in credit quality.

Secured Finance Network data show non-accruals among surveyed lenders reached 1.38% of loans outstanding in the first quarter of 2026, their highest level since early 2011. Non-accruals had been around 0.2% during 2022 before rising sharply, including a jump from 0.54% to 1.00% between the fourth quarter of 2024 and first quarter of 2025.

That does not mean a systemic credit crisis is imminent.

But the underlying mechanics of asset-based lending make the deterioration worth watching.

ABL providers operate close to the assets that turn business activity into liquidity. Receivables, inventory and other working-capital assets are monitored to establish how much a lender is prepared to advance.

Research discussed by SFNet argues that its lending survey has historically contained information about wider financial stress before it becomes apparent in traded markets. At present, that creates an interesting divergence: non-accruals have been rising while securitisation spreads remain relatively tight and issuance remains healthy.

The implication is not that secured lenders can predict every corporate failure. It is that deterioration in working-capital assets can become visible before a missed bond payment or formal insolvency filing.

Receivables can provide an early warning

Trade receivables are particularly useful because they sit close to the operating relationship between companies.

A debtor that previously paid in 45 days may start paying in 60. An invoice may become disputed. Customers may request extensions. Overdue balances can accumulate. One large debtor can begin representing a growing proportion of the total outstanding book.

None of those developments necessarily means the customer will fail.

Together, however, they can change the quality of the asset being financed.

For a factor or asset-based lender, an invoice is not automatically worth its face value as collateral. Eligibility criteria typically determine which receivables can enter the borrowing base, while advance rates determine how much can be lent against eligible balances.

An invoice that becomes too old may cease to qualify. Concentration limits can restrict the amount attributed to a single customer. Disputes, offsets and dilution can reduce the amount a financier is willing to recognise.

Lenders can also increase reserves when perceived risk rises.

The consequence is important: a company can suffer a liquidity squeeze before it actually records a final bad-debt loss.

If £10m of receivables previously generated £8.5m of borrowing availability, deterioration in the quality or eligibility of those invoices could reduce that availability even though the nominal value of the receivables has not changed.

At precisely the moment a company needs additional liquidity because customers are paying more slowly, its borrowing capacity can therefore come under pressure.

Who actually carries the loss?

The answer depends heavily on how the receivable has been financed.

In a recourse factoring arrangement, the seller may ultimately retain the credit risk if the customer fails to pay for credit-related reasons, depending on the contractual terms. The financier can therefore have recourse to the seller rather than absorbing the final loss itself.

A qualifying non-recourse arrangement can transfer specified debtor credit risks to the financier, although the extent of that protection depends on the agreement. Disputes, contractual breaches, dilution or ineligible invoices may fall outside the risks assumed.

Trade credit insurance introduces another layer.

Where eligible receivables are insured, a policy can protect a supplier or financier against specified customer non-payment. But coverage limits, deductibles, waiting periods and policy exclusions mean insurance should not simply be treated as a guarantee that every unpaid invoice will be recovered in full.

The details therefore matter.

Two companies can each have £5m of outstanding customer invoices while carrying very different levels of economic exposure depending on debtor concentration, insurance, factoring structure, invoice eligibility and the financial strength of their customers.

Insolvencies are keeping non-payment risk elevated

The wider insolvency environment adds urgency to the issue.

Allianz Trade currently forecasts global business insolvencies to rise by 6% in 2026, which would make this the fifth consecutive year of increases. It expects 26,550 UK business insolvencies during the year, around 30% above pre-2020 levels.

Allianz Trade specifically identifies prolonged non-payment risk from buyer insolvencies alongside disruption caused by supplier failures. It estimates that 2.2 million jobs could be directly at risk from business insolvencies globally during 2026.

The significance for working capital is that corporate failures do not remain contained within the failed company.

A manufacturer that enters insolvency may owe money to component suppliers, logistics companies and service providers. A retailer may leave product suppliers with outstanding invoices. A construction failure can transmit losses through multiple tiers of subcontractors.

The larger and more interconnected the failed company, the greater the potential for those losses to propagate through its commercial relationships.

That is why customer concentration deserves particular attention.

A £1m bad debt may be manageable for a business with £500m of annual sales and a highly diversified debtor book. The same loss could materially change earnings or liquidity for a smaller supplier dependent on a handful of major customers.

When the customer enters restructuring

Formal restructuring can make the distinction between old and new liquidity especially stark.

The recent Chapter 11 filing by True Food Kitchen provides an example. The restaurant operator entered proceedings with approximately US$42.1m of funded debt and secured a commitment for approximately US$20m of debtor-in-possession financing, subject to court approval, while pursuing a sale.

DIP financing is designed to provide liquidity during the restructuring process. It can support continuing operating costs while the business attempts to preserve value.

But that new liquidity does not automatically make pre-filing supplier receivables whole.

For a supplier, this creates a fundamental dividing line. Goods delivered after a restructuring begins may be treated differently from unsecured amounts already owed when proceedings started, depending on the applicable insolvency regime and circumstances.

That is why the moment of customer failure matters so much for receivables management. The commercial relationship may continue, but the legal and economic status of money already owed can change dramatically.

The risk is not only whether the customer can pay

Creditworthiness is only one dimension of modern receivables risk.

Financiers must also establish that the receivable exists, represents a genuine underlying trade transaction and has not already been financed elsewhere.

Duplicate financing is particularly difficult because two institutions may independently receive apparently valid documentation without visibility of each other’s financing activity.

That problem was highlighted again in October when Unloq embedded MonetaGo’s duplicate-finance screening into its receivables and trade-finance workflows.

The technology is intended to identify potentially duplicated receivables across institutions before funding is advanced, while maintaining confidentiality of the underlying commercial data.

It illustrates how the definition of receivables risk is expanding.

The traditional question was: will the debtor pay?

Financiers increasingly need answers to several questions: does the receivable exist, is the underlying transaction genuine, is the invoice undisputed, has it already been financed, and will the debtor ultimately pay?

Failure at any one of those stages can affect recoverability.

More data does not eliminate concentration risk

Digitalisation has made monitoring considerably more sophisticated.

Receivables financiers can increasingly analyse payment behaviour, invoice ageing, debtor concentrations and transaction histories at greater speed. Automated systems can identify anomalies that would have been difficult to detect through periodic manual reviews.

But better monitoring cannot remove the underlying economic risk.

If a supplier depends heavily on one buyer, that concentration still exists regardless of how effectively it is measured. Technology may identify deterioration earlier, but it cannot make an insolvent customer pay.

The same applies to collateral.

A lender can monitor a borrowing base daily, but deteriorating receivables may still force it to reduce availability if those assets no longer meet agreed eligibility standards.

The value of better information is therefore not that it eliminates credit risk. It provides more time to react.

What should financiers watch next?

The remainder of 2026 should provide more evidence about whether today’s deterioration is concentrated among individual borrowers or developing into a broader working-capital issue.

Non-accrual rates are one measure. Payment delays, invoice ageing, debtor concentrations and bad-debt provisions may provide others.

For asset-based lenders, increasing reserves or declining collateral eligibility would be particularly important. For factors, changes in debtor performance and client credit quality could reveal stress before it becomes visible through formal insolvency statistics.

Credit insurers may also provide an important signal through changes in limits and claims experience.

And companies themselves may increasingly reveal the consequences through profit warnings similar to SBF’s, where the failure of a customer rather than deterioration in the company’s own underlying operations creates the immediate financial shock.

There is already reason for heightened attention. Allianz Trade expects global insolvencies to rise again this year, while secured lenders are reporting their highest non-accrual rate in 15 years.

Neither statistic proves that a widespread credit event is approaching.

Together, however, they reinforce the importance of looking beyond the headline solvency of the company being financed and into the quality of the customers ultimately expected to generate its cash.

The balance sheet does not end at the company

Receivables occupy an unusual position in corporate finance.

They are assets belonging to one company but whose ultimate value depends on the willingness and ability of another company to pay.

That makes them a transmission mechanism for financial stress.

When a major customer fails, the effect can move from the debtor’s balance sheet to its suppliers, from suppliers into borrowing bases, and from borrowing bases into available liquidity. Credit insurance, non-recourse financing, diversification and tighter monitoring can redistribute or mitigate that risk, but they cannot make it disappear.

For factors and asset-based lenders, this is precisely why debtor quality matters alongside borrower quality.

And for companies, the lesson is equally important.

A sale is not cash. Until the customer pays, part of the company’s liquidity remains on somebody else’s balance sheet.