When Customers “Phoenix” – How to Protect Your Business

Running a small business is challenging enough without the added frustration of customers who don’t pay their bills. One of the most damaging practices that many UK businesses encounter is “phoenixing”.

What is a “Phoenix” Company?

A phoenix company is a new business that rises from the ashes of a failed one. The directors close down a company that has built up debts, leaving creditors unpaid, only to start trading again almost immediately under a different company name – often with the same people, premises, customers, and suppliers.

Often the company has been set up years before, with a similar name. Then when the first business starts to fail, business assets and the active trade are quietly transferred to the new company, leaving the creditors high and dry.

While the practice is not necessarily illegal (depending on how it is done), it is often used as a way to dump debts and start afresh, leaving the HMRC, small suppliers and contractors nursing heavy losses.

Entrepreneurs who have done it once are often tempted to become repeat offenders when they realize how easy it is.

Why Phoenixing is a Danger to Small Businesses

For small businesses, a phoenix customer can be devastating:

• 💸Unrecoverable debts – suppliers may find themselves at the back of the queue in an insolvency process, often receiving little or nothing back.
• 🫢Loss of trust – discovering that the same directors are back in business under a new name can feel like a betrayal.
• 🚨Cash flow damage – unpaid invoices can leave your business short of working capital, forcing you to borrow or delay your own payments.
• 🔁Repeat risk – if you don’t spot them, you may end up trading with the same people again and facing the same outcome.

How to Protect Your Business

The good news is that small businesses can take practical steps to reduce their risk and limit exposure:

1. Run Credit Reports and Monitoring

Use credit information services (like CPA’s Creditcare reports) to check the financial health of customers before offering credit. Monitoring will alert you to adverse changes, CCJs, or insolvency notices.

2. Identify the People Behind the Business

Don’t just focus on the trading name. Make sure you know the directors and owners. A phoenix company usually has familiar faces at the helm. Look at what companies they’ve previously been directors of. Phoenixing is addictive and often you will find a history of companies with similar names that have gone bust every few years. And Keep an eye out for the directors of a key customer setting up a new company with a very similar name which is currently dormant. Such companies are usually set up long in advance, sometimes years ahead of a phoenixing. There may well be another reason for the company being set up. But be aware.

3. Tighten Credit Terms

Offer limited credit to new or higher-risk customers. Use deposits, staged payments, or pro forma invoicing until you see a track record of reliable payment.

4. Act Quickly on Overdue Accounts

The longer an invoice goes unpaid, the greater the risk. CPA’s Overdue Account Recovery service resolves over 80% of accounts referred to us, ensuring you’re paid before problems escalate.

5. Secure Personal Guarantees

For larger contracts, consider asking directors to personally guarantee payments. This ensures they cannot simply walk away from their obligations.

6. Use Professional Debt Recovery

By the time a business has collapsed and the pheonix company has taken over, there is usually little that can be done. So don’t let them debts sit there unpaid by struggling businesses. Get overdue accounts chased fast. CPA can pursue debts on a no-win, no-fee basis, so you can move on while we collect the payment while the struggling business still has the assets to pay.

CPA – Helping You Avoid the Burn

Phoenixing is a growing challenge in today’s difficult trading environment, but you don’t have to face it alone.

At CPA, we give our members the tools to spot risky customers early, recover overdue accounts efficiently, and minimise losses when businesses try to rise again from the ashes of unpaid debt.

📞 Call Peter Uwins today on 020 8846 0000 or email nsm@cpa.co.uk