What happens to your invoice finance when a funded customer goes into liquidation or administration: recourse, buybacks, preference claims and first steps.
Business Owners Hub
Invoice Finance · Customer Liquidation · Recourse
The liquidator's notice arrives on a Tuesday. Your biggest funded customer owes three invoices, and your facility is drawn against them. This walkthrough covers what the facility does next, what the liquidator can do, and the order to act in.
Quick Answer
When a funded customer goes into liquidation, the invoices it owes you usually stop being paid, and who carries the loss depends on whether your invoice finance facility is recourse, non recourse or insured. The usual sequence is: tell your funder, check the recourse terms and your limit, lodge a proof of debt, check any retention of title and PPSR registration, then talk to your accountant about the GST and to a lawyer if the liquidator asks for money back.
Also called: customer insolvency, debtor insolvency, a customer going bust. Each one ends in the same question for your facility: who carries the unpaid invoice.
What happens to your invoice finance when a customer goes into liquidation?
When a funded customer goes into liquidation, its unpaid invoices usually stop being collectable on normal terms, and your funder will treat them as at risk from the day it hears. The customer's control passes to a registered liquidator, who collects the company's assets and pays creditors in a set order. Your invoices become an unsecured claim in that process unless you hold security over something.
For the facility, three things move at once. The funder stops advancing against that customer. The invoices already funded start running down the recourse period in your agreement. And your available limit typically shrinks, because the funder no longer counts that customer's accounts receivable as eligible.
Who gets paid first in a liquidation?
In a liquidation, the costs of the liquidation are generally paid first, then employee entitlements, then unsecured creditors, with secured creditors dealing with their own security. ASIC's creditor guide lists the usual order as liquidation costs and fees, employee wages and super, employee leave, retrenchment pay, then unsecured creditors, with each category paid in full before the next one receives anything. Most trade creditors, including a business owed on invoices, sit in the unsecured group, which is why dividends on trade debts are often small and slow.
Two tables later in this post set out what changes by facility type and by insolvency type. Read them with your own agreement open, because the clause wording decides more than the label on the facility.
Do you have to buy back the invoice under a recourse facility?
Under a recourse facility, you usually do have to buy back or replace a funded invoice the customer does not pay, and a liquidation is the most common reason that happens. Most small business invoice finance in Australia is written on recourse terms, so the credit risk on your customers stays with you. The invoice finance guide explains recourse and non recourse in full; this section is only about what it means once a customer has failed.
How does the recourse period work after a customer fails?
The recourse period is the window your agreement gives a funded invoice to be paid before the funder can hand it back to you. A liquidation does not usually restart or extend that window, and some agreements let the funder recourse an invoice early once the customer is insolvent. That is why the recourse period is the clock that matters: it, not the liquidator's timetable, decides when you repay the advance. Our post on invoice factoring agreement clauses shows where to find the recourse and insolvency wording.
What does a buyback do to your limit and cash?
A buyback is usually settled by the funder debiting your reserve, netting it off the next advance, or swapping in fresh invoices from other customers. Whichever method applies, a buyback reduces your limit the day it happens, because the funded balance against good customers now has to carry the failed one too. In practice, the cash squeeze shows up a week or two later, when the next advance is smaller than the owner planned for.
Does non recourse finance or credit insurance cover an insolvent customer?
Non recourse finance and credit insurance can both cover an insolvent customer, but only within their conditions, and neither covers everything a liquidation throws up. Under a non recourse facility, the funder typically carries the loss when an approved customer becomes insolvent, up to the credit limit it set for that customer. It usually does not carry losses from disputes, short deliveries or invoices raised outside its approval.
Credit insurance works differently. The policy is a contract between you, or the funder, and the insurer, and a claim depends on things like notifying on time, staying within the insured limit and not trading past an overdue point. Insured is not the same as non recourse: on an insured recourse facility, you may still have to buy back the invoice first and wait for the claim to pay. Credit insurance on a single invoice is covered in the single invoice finance guide, and cross border cover sits in our export invoice finance post.
| Facility type | Who usually carries the loss | What happens to the limit | What you do next |
|---|---|---|---|
| Recourse | You, once the recourse period ends or the agreement allows early recourse | Typically reduced by the buyback and by the customer dropping out of the eligible ledger | Plan the buyback, lodge your proof of debt, replace the funding with other invoices |
| Non recourse | The funder, for approved invoices within the customer's credit limit | The customer's sub limit is usually closed; the rest of the facility can continue | Confirm the invoices were approved and undisputed, give the funder your records |
| Credit insured | The insurer, if the policy conditions were met; you may carry it until the claim pays | Can drop first and recover when the claim pays, varies by funder | Notify the insurer within the policy's time, keep every invoice and delivery record |
| Selective or single invoice | Usually you, unless that invoice was funded non recourse or insured | Only the funded invoice is affected | Check the terms of that one funding, stop selecting that customer |
What changes if the customer goes into voluntary administration instead?
If the customer goes into voluntary administration instead of liquidation, the business may keep trading under an administrator while creditors decide its future, so the outcome for your invoices is less settled. Creditors generally cannot enforce their claims during the administration, and the creditors then vote on whether the company enters a deed of company arrangement, goes into liquidation, or returns to the directors.
For a funded ledger, the difference is mostly about timing and new work. Old invoices are frozen as claims in the administration. New work the administrator orders is usually the administrator's responsibility to pay, but many funders will not advance against an administrator's orders without checking first. Most often, the funder pauses the customer, waits for the creditors' vote, and then either recourses the old invoices or treats them under the deed.
A smaller customer may use a third route, small business restructuring, where the directors stay in control while a restructuring practitioner puts a plan to creditors. Old debts are also put on hold during that process, so treat the funded invoices the same way: tell the funder, and wait for the creditors' decision before counting on payment.
| Question | Liquidation | Voluntary administration |
|---|---|---|
| Who controls the company? | A registered liquidator, who winds it up | An administrator, often while trading continues |
| Can you chase the old invoices? | No, you lodge a proof of debt and wait for any dividend | Generally not while the administration runs |
| Is new work paid? | Usually no new work, the business is closing | Orders placed by the administrator are usually the administrator's to pay |
| What decides the outcome? | The assets the liquidator recovers and the priority order | The creditors' vote on a deed, liquidation or return to the directors |
| What does the funder usually do? | Treat the invoices as failed and apply the recourse terms | Pause the customer and wait, varies by funder |
Sources: Australian Securities and Investments Commission, Liquidation: a guide for creditors (INFO 45), last updated 17 December 2024. Read 10 November 2026. Voluntary administration rows are general information on the administration process and should be checked against the administrator's own report.
Can a liquidator claw back what the customer paid you?
A liquidator can ask you to repay money the customer paid you before the liquidation if that payment was an unfair preference, meaning it put you ahead of other unsecured creditors while the customer was insolvent. A preference claim can reach money you already banked, including invoices your funder collected and applied to your facility, which is why it belongs in a post about invoice finance.
How far back can a preference claim reach?
ASIC's creditor guide, read on 10 November 2026, describes the main test as a payment made in the six months before the liquidation is taken to have begun, up to the liquidator's appointment, while the company was insolvent, that gave the creditor more than it would get as a dividend. The guide notes the liquidation can be taken to have begun before the appointment date. In a simplified liquidation, the guide says payments to an unrelated creditor can only be recovered if made in the three months before the liquidation began and totalling more than $30,000. Check the guide at the time you receive a claim, because these rules can change.
What should you do if you receive a preference claim?
Ask the liquidator for the details, reasons and evidence behind the claim before you pay anything, and get legal advice on whether it holds. The guide sets out a defence where you acted in good faith, had no reasonable grounds to suspect insolvency, and gave value for the payment. Where you supplied the customer on continuing terms, the law generally treats the payments and new supplies across that relationship as one running account, so a claim is usually measured on the net change over the period rather than on each payment; your lawyer will test this first. Tell your funder at the same time, because if the funder collected the money, the agreement will say who answers the claim and who bears it.
What should you do in the first week after the notice?
In the first week after the notice, tell your funder, stop new funding against the customer, and secure your claim and any goods in a fixed order. Tell the funder before the liquidator tells them: most agreements require prompt notice of a customer insolvency, and a funder that hears it from you first is easier to work with on the buyback.
First 48 hours after the notice: do
- Ring and email your funder with the notice attached
- Hold back any unfunded invoices for that customer
- Pull every invoice, delivery docket and signed order
- Find the retention of title clause in your trading terms
- Check whether you registered it on the PPSR
First 48 hours after the notice: avoid
- Uploading new invoices for the failed customer
- Collecting goods from site without the liquidator's agreement
- Accepting a quick part payment without advice
- Waiting for the funder to find out from the liquidator
- Writing the debt off before you speak to your accountant
What is the right order for the paperwork?
The working order is proof of debt, retention of title, PPSR, in that order, followed by the tax position:
- Proof of debt. Lodge the claim with the liquidator with your invoices attached. ASIC's guide says the liquidator must give at least 14 days' notice of the deadline before a dividend, and that a claim can be rejected for lack of evidence. Your agreement decides whether you or the funder lodges for funded invoices.
- Retention of title. If your terms say you own goods until they are paid for, write to the liquidator identifying the goods. Goods already installed, mixed or on-sold are usually harder to claim.
- PPSR. A retention of title claim generally needs a registration on the PPSR made before the insolvency to hold up against a liquidator. Our post on PPSR registration in invoice finance explains the funder's side of the register.
- GST and the bad debt. If you account for GST on an accruals basis, you may be able to claim back the GST on the unpaid invoice once the debt is written off or has been overdue long enough, through your BAS. The timing is your accountant's call.
If the failed customer was a builder and you are holding retention, the rules on when retention is released sit in our post on retention and the final claim.
How do you protect the facility from the next customer failure?
You protect the facility from the next customer failure by keeping any one customer from carrying too much of the funded balance, checking customers before you extend terms, and choosing the facility terms with failure in mind. Funders already apply concentration limits for this reason; our post on the debtor concentration limit shows how they are set.
- Spread the ledger. A facility that leans on one customer turns that customer's failure into your cash crisis.
- Check before you extend credit. A company search and payment history check on new customers, covered in our customer credit check post, catches some failures before they reach the ledger.
- Watch the warning signs. Stretching payment terms, part payments and promises tied to someone else paying them are the signals funders read in the debtor book.
- Price the cover. Non recourse or insured terms cost more, and for a ledger with a few large customers that cost can be worth weighing. A broker can compare the options across funders for your business.
- Use selective funding. Funding only stronger customers' invoices, as in flexible invoice finance, keeps a shaky customer out of the facility altogether.
When a funded customer goes into liquidation, your facility terms decide who carries the loss and when, and the liquidation rules decide what you can recover and what you might have to repay. Recourse facilities usually hand the invoice back to you within the recourse period, non recourse and insured cover pay only within their conditions, and a liquidator can reach payments made in the months before the appointment. Acting early, in order, protects both the claim and the relationship with your funder.
Key takeaway: tell your funder the day the notice arrives, then work through proof of debt, retention of title and PPSR before you touch anything else.Frequently Asked Questions
In a liquidation, the costs of the liquidation, including the liquidator's fees, are typically paid first, followed by employee entitlements and then unsecured creditors. Secured creditors generally deal with the assets their security covers. Most businesses owed on invoices are unsecured, so the dividend on an unpaid invoice is often small and slow. Our liquidation glossary entry covers the process.
When a customer goes into liquidation, its unpaid invoices become a claim you lodge with the liquidator through a proof of debt, and any payment comes as a dividend after higher priority creditors. If the invoices were funded, your invoice finance agreement decides whether you buy them back, usually within the recourse period. A retention of title clause may help with unpaid goods if it was registered on the PPSR.
A liquidator can claw back invoice payments that were unfair preferences, meaning payments made while the customer was insolvent that put you ahead of other unsecured creditors before the liquidation. ASIC's creditor guide describes a six month period for the main test, with narrower rules in a simplified liquidation. Ask for the liquidator's evidence, get legal advice before repaying, and check your invoice factoring agreement clauses to see who answers the claim.
Trade credit insurance can cover customer insolvency, but only for insured customers within their limits and only if the policy conditions, such as notifying on time, were met. It is not the same as a non recourse facility, and you may still have to buy back the invoice while the claim is assessed. The single invoice finance guide covers insurance on one invoice.
You may be able to claim back the GST on a bad debt from a liquidated customer if you account for GST on an accruals basis and the debt has been written off or overdue for the required period. The adjustment usually goes through your BAS, and your accountant should confirm the timing and amount. A later dividend from the liquidator can mean part of that adjustment is reversed.
FBAA Accredited
