What can I do when suppliers cut our credit and want paying up front?

What has actually changed when a supplier withdraws credit?

While a supplier gives you time to pay, that supplier is funding your stock from delivery until the invoice is settled. Move to payment up front and the company funds it instead. The price may not have changed, but the cash leaves much earlier.

The hardest stretch is the changeover. Old invoices still fall due on the old terms while every new order has to be paid before it ships, so for a while the company is paying that supplier twice over. It is easy to read that squeeze as permanent. Much of it is a one time step, and it eases once the old balance has been cleared. What stays is the extra cash tied up in stock for as long as the new terms last.

The usual paperwork is a pro forma invoice, which asks for the money before the goods are sent.

Why do suppliers tighten terms?

Sometimes the reason sits with your account, and sometimes it has little to do with you. Late payments are the obvious one. Others include a larger order that takes you past your credit limit, overdue filings that make the company look less well run from the outside, or pressure on the supplier's own cash. Some suppliers also insure what customers owe them, and if that insurer reduces or withdraws its cover on your company, the supplier may stop offering credit even if you have always paid on time.

So ask, and ask the person who made the decision. That is often the credit controller rather than your usual contact. A plain question works: what has changed, and what would you need to see for this to be reviewed?

What does the official guidance say this can mean?

A change of terms may be innocent. It can also be a warning sign. The Insolvency Service's guide, Company health check: keeping your business on track, sets out a cash flow test for insolvency. It says signs that a company is failing the test include late payments to suppliers who may issue reminder letters, threaten or start recovery proceedings, place trade accounts on stop or insist on payment in advance for goods and services. It adds that falling into arrears with payments to HMRC can also be an indicator.

A sign alone does not settle whether your company is insolvent. A supplier's request for payment in advance is a good moment to check the figures. GOV.UK's page on director duties upon insolvency describes insolvency in two ways: not being able to pay bills when they become due, or having debts larger than the value of the company's assets. Our post on director duties when a company is struggling covers what changes if either test is met.

How do you plan cash around payment up front?

Start with the weekly forecast, and rebuild it around the new terms. Our post on why cash runs out before wages and VAT are due explains how to lay one out. These are the lines that change.

Line in the forecast	What to do with it	What it shows you
New orders from suppliers on pro forma	Put each one in the week you pay, not the week the goods arrive	How much earlier the cash now leaves
Old invoices on the previous terms	Keep them on their real due dates, alongside the new orders	How deep the changeover squeeze goes, and when it ends
Stock you actually need	Work from recent sales, not from your usual order size	How much smaller each order could be
Money from customers	Use how each customer really pays, not the invoice date	Whether receipts arrive in time to pay for the next order
Wages, VAT, PAYE and rent	Leave them on their fixed dates	Whether the new orders are being funded from money already spoken for

The forecast usually points to practical changes. Ordering less and more often ties up less cash at once, although minimum order sizes and delivery charges can eat into the saving. Invoicing on the day the work is done brings receipts forward, and a deposit from a customer can pay for materials on a large order, although if there is any doubt the company can pay its debts, take advice before accepting customer money.

What do suppliers want to see before they restore terms?

Mostly, they want to believe the next invoice will be paid. Nothing guarantees that a supplier will agree, and you should go in expecting a staged answer rather than a full return to your old terms.

Bring the supplier a clear position: what you owe them, when each old invoice will be cleared, and a short summary of the steps you have taken. Check that your accounts and confirmation statement are up to date at Companies House, because anyone checking the company can see them.

Then propose steps a credit controller can say yes to. Part payment up front with the balance on short terms is one. Another is a small credit limit that grows after a period of clean payments, with a review date you both agree. Put what is agreed in writing, and promise only dates the forecast supports.

Watch for one common request. GOV.UK's page on personal guarantees says many lenders, landlords and suppliers request personal guarantees to reduce their risk, and describes one as a legally binding agreement that the director will personally repay a debt if the company fails to meet its financial obligations in relation to that debt. A supplier may offer credit back on that basis. Take the document to a solicitor before signing, and read our post on what to check about a personal guarantee.

Which choices make this harder?

Clearing the loudest supplier first is an easy mistake to make. If a key supplier will only ship once the old balance is paid, the temptation is to pay it and let others wait. Once a company is insolvent, GOV.UK's page on director duties upon insolvency says directors must treat all creditors the same and cannot prioritise one over another. The Insolvency Service's health check guide adds that directors' responsibilities change when insolvency is a possible outcome. If you are unsure where the company stands, speak to a licensed insolvency practitioner before deciding who to pay.

Funding stock from tax money is another. VAT and PAYE keep falling due and the arrears build quickly. Our post on why HMRC debt keeps growing explains how.

Some directors also stock up on the last of their credit. That deserves care, because GOV.UK's director duties page also says the directors of an insolvent company must make sure it does not worsen the financial position of creditors.

What should you check in the supply terms?

Read the terms you signed, or those on your order confirmations. Look for the credit limit, any right to withdraw credit, and when ownership of the goods passes to you.

The Sale of Goods Act 1979 says a seller may, by the terms of the contract, reserve the right of disposal of the goods until certain conditions are fulfilled, and that the property in the goods does not then pass to the buyer until those conditions are met. So stock on your shelves may still belong, in law, to a supplier you have not yet paid. A solicitor can tell you what your own terms mean.

A supplier you pay late also has rights, and so do you against customers who pay you late. GOV.UK's guide to late commercial payments says that with no agreed date a payment is late 30 days after the customer gets the invoice, or after delivery if that is later. Its page on interest gives statutory interest as 8% plus the Bank of England base rate between businesses, unless a contract sets a different rate.

When is this not the answer?

Better terms and a tighter forecast help a business whose trading is sound. They do not fix one that is losing money on what it sells.

If the forecast shows the company cannot pay its debts as they fall due, or it owes more than it owns, speak to a licensed insolvency practitioner. The Insolvency Service's insolvency page lists contacting your creditors to discuss an informal agreement over unpaid bills among the options for a company that can continue to trade, and it tells directors to check their options with a professional adviser first. Vanquish Capital is not an insolvency practitioner, a solicitor or an accountant, and we will tell you when you need one.

A formal procedure can change the rules on supply, too. In England, Wales and Scotland, section 233B of the Insolvency Act says that once a company is subject to a relevant insolvency procedure, such as a moratorium or administration, a supplier shall not make a new supply conditional on outstanding charges for earlier supplies being paid. It does not apply before then, and there are exclusions, including for some essential supplies and where the company or supplier is a financial firm, and for financial contracts. A supplier can still end the contract in some cases, including with consent from the office holder or the company, or with the court's permission on hardship grounds. The rule is about old charges, so do not assume it ends payment up front on new orders. An insolvency practitioner can say whether it would help in your case.

If court papers or a formal demand arrive, speak to a solicitor. For free help with business debts, the health check guide points to Business Debtline. And if one supplier has simply changed its policy while the rest of the business is healthy, a second supplier and a revised order pattern may help, though a new supplier may ask for payment up front at first.

Who can help you prepare?

If it would help to work through it with someone, you can book a confidential consultation. We can help you rework the numbers, plan your supplier conversations and prepare for any talks with regulated advisers. You can read more about our operational support and business recovery work.