What happens to my invoice when a customer goes into liquidation in Australia?

When a customer enters liquidation, an appointed liquidator takes control of their assets. As an unsecured creditor, your invoice becomes a claim against the company. You must lodge a formal Proof of Debt with the liquidator to participate in any distribution. Unfortunately, unsecured creditors are paid last and often receive only cents in the dollar, if anything.

What is the difference between liquidation and voluntary administration?

Voluntary administration is a temporary process where an administrator assesses whether the company can be saved through a deed of company arrangement. Liquidation is the end stage where the company is wound up and its assets distributed to creditors. During voluntary administration, creditors vote on the future of the company. In liquidation, recovery for unsecured creditors is usually much lower.

How do I lodge a Proof of Debt in Australia?

Contact the appointed liquidator or administrator directly. They will provide a Proof of Debt form (ASIC Form 535 for liquidations). Complete it with your business details, the amount owed, and attach supporting documents such as invoices, contracts, and statements. Submit before any creditor meeting deadlines the liquidator sets.

Can I reclaim the GST on an invoice from an insolvent customer?

Yes. Under ATO rules, if a customer is placed in external administration and cannot pay your invoice, you may be able to claim a bad debt adjustment on your BAS and recover the GST portion you have already remitted. Check with your accountant or BAS agent, as specific conditions apply based on your GST accounting method.

How do I write off an insolvent customer debt in Xero?

In Xero, go to Business, then Invoices, find the relevant invoice, click the three-dot menu, and select Write Off. This creates a credit note against a Bad Debts expense account. If you are on accruals GST basis, your accountant can then process a GST adjustment on your next BAS to reclaim the GST component.

How can I protect myself from customer insolvency in future?

Key protections include: requiring deposits or upfront payments for new or high-risk clients; shorter payment terms (7-14 days instead of 30+); registering security interests on the PPSR for goods supplied; running credit checks on new clients; and using automated payment reminders to collect before issues escalate.

Can I stop supplying a customer who is in voluntary administration?

Generally yes, unless you have a contract that prevents it. Once a customer enters voluntary administration, you are entitled to cease supply, but be aware that any new supplies you make during administration may be treated as a new debt with a higher priority than your old invoices.

Does trade credit insurance cover customer insolvency in Australia?

Yes. Trade credit insurance is specifically designed to cover losses from customer insolvency (liquidation), protracted default, and sometimes political risk on export sales. If you regularly extend credit to customers, it is worth exploring policies from Atradius, Coface, or QBE for Australian businesses.

What to Do When a Customer Goes Insolvent in Australia [2026 Guide]

28 February 2026 · 11 min read · PaidMate Team

The call or email you dread: a customer who owes you money has entered voluntary administration or been placed into liquidation. Your invoice, which looked like solid revenue on your books, suddenly feels very uncertain.

This happens more often than most small business owners realise. In Australia, thousands of companies enter external administration every year. When it happens to one of your clients, the way you respond in the first few days and weeks can make a significant difference to how much, if anything, you recover.

This guide explains exactly what to do, in order, when a customer goes insolvent in Australia — including how to lodge a Proof of Debt, reclaim your GST, write off the debt in Xero, and protect yourself from the same situation in future.

Important: This guide is for general information only and does not constitute legal or financial advice. For your specific situation, consult a solicitor, insolvency practitioner, or your accountant. Rules around insolvency are technical and time-sensitive.

Understanding the Types of Insolvency in Australia

Before taking action, it helps to understand what process your customer has entered. There are several different forms of external administration under the Corporations Act 2001 (Cth), and they have different implications for creditors.

Process	What It Means	Creditor Priority
Voluntary Administration	An administrator assesses if the company can be saved. May result in a Deed of Company Arrangement (DOCA) or liquidation.	You may vote on the DOCA at a creditors meeting
Liquidation (CVL or Court)	Company is wound up. Assets sold and distributed to creditors in priority order.	Unsecured creditors paid last, often little or nothing
Receivership	A secured creditor appoints a receiver over specific assets. Less common for trade creditors.	Unsecured creditors rarely benefit
DOCA	A compromise deal between the company and creditors. You may receive partial payment over time.	Varies by deed terms

Step-by-Step: What to Do Immediately

Stop All Supply Immediately

The moment you learn a customer has entered external administration, stop all goods, services, or credit. Any supply you make after this point creates a new debt that may be treated differently to your existing invoice, and you risk compounding your losses. Notify your operations or accounts team immediately.

Identify the Appointed Administrator or Liquidator

The administrator or liquidator is the person who now controls the company. Their details are usually communicated directly or can be found via the ASIC registers at asic.gov.au. Search for the company name and look for any insolvency notices. You can also search the Australian Financial Security Authority (AFSA) register if it is a personal insolvency situation involving a sole trader.

Contact the insolvency practitioner as soon as possible to register your interest as a creditor. Ask them to add you to their creditor list so you receive all future communications.

Lodge a Proof of Debt

This is the most critical step. A Proof of Debt is the formal document you submit to the administrator or liquidator that declares the amount the company owes you. If you do not lodge this, you will not participate in any distribution of assets — even if you are clearly a creditor.

For liquidations, the relevant form is ASIC Form 535, available from ASIC or the liquidator directly. You will need to provide:

Your business name, ABN, and contact details
The total amount owed, broken down by invoice
Supporting documents: copies of all unpaid invoices, the relevant contract or purchase orders, and any delivery dockets or work orders
A statement of whether any security is held over the debt (e.g., PPSR registration)

For voluntary administration, the administrator will advise on the process for the creditors meeting and any deed vote. Attend the creditors meeting if the amount owed to you is material.

Check Your PPSR Registration

If you supply goods to customers and you have registered a security interest on the Personal Property Securities Register (PPSR), you may have rights to recover the specific goods if they are identifiable and still in the customer's possession at the time of administration. This is a significant advantage over unsecured creditors.

If you supplied goods and did not register on the PPSR, you are an unsecured creditor. This is a lesson many business owners learn the hard way. Going forward, any business that supplies goods on credit should understand and use PPSR registration as standard practice.

Review Contracts for Personal Guarantees

If your credit application or contract included a personal guarantee from a director of the insolvent company, you may be able to pursue that individual personally, regardless of the corporate insolvency. Personal guarantees survive the company's liquidation. Review your documentation and seek legal advice if a material amount is owed and a guarantee exists.

Write Off the Debt in Xero

Once it becomes clear that you are unlikely to recover the full amount, write off the debt in Xero so your financial statements reflect reality. In Xero, go to Business → Invoices, open the overdue invoice, click the three-dot menu, and select Write Off. Xero will create a credit note coded to your Bad Debts expense account, which reduces your taxable income for the period.

You do not have to write off the entire amount immediately if the insolvency process is still ongoing. You can write off a partial amount now and the balance once the process concludes.

Reclaim the GST on Your BAS

If you are registered for GST on an accruals (non-cash) basis and you have already remitted the GST on the unpaid invoice to the ATO, you may be entitled to claim it back as a bad debt adjustment on your next Business Activity Statement.

The conditions for this GST reclaim include: the debt must have been outstanding for at least 12 months, or the debtor must be in external administration. Since your customer is now in administration or liquidation, the latter condition is likely met regardless of age. Talk to your accountant or BAS agent to process this correctly.

What to Realistically Expect as an Unsecured Creditor

The hard truth of insolvency is that unsecured trade creditors — which is what most invoice holders are — sit near the bottom of the priority ladder. The order in which a liquidator distributes proceeds is roughly:

Costs of the insolvency administration itself
Employee entitlements (wages, superannuation, leave)
Secured creditors with registered security interests
Unsecured creditors (your trade invoice goes here)
Shareholders (last, and almost never paid in insolvency)

Reality check: ASIC statistics consistently show that the majority of liquidations result in no dividend for unsecured creditors. In many cases, there are simply no assets left after secured creditors and administration costs are paid. This is why prevention — through credit checks, deposits, and early collection — is so much more effective than cure.

That said, do not assume you will receive nothing without checking. There are cases where DOCAs provide partial recovery (say, 30 cents in the dollar) and cases where assets are sold and there is something left for unsecured creditors. Always lodge your Proof of Debt and stay engaged with the process.

Protecting Yourself From Customer Insolvency in Future

After going through the stress of a customer insolvency, most business owners want to ensure it never happens again, or at least that the financial impact is minimised. Here are the most effective protections available to Australian small businesses.

Credit Check New Customers Before Extending Credit

Run a credit check on any new customer before offering payment terms. Commercial credit bureaus such as Equifax, illion, and Creditor Watch provide company credit reports for a small fee. Red flags include recent defaults, court judgements, or director disqualifications. A quick check can save you from a significant bad debt.

Require Deposits or Upfront Payments for High-Risk Accounts

Not all customers deserve 30-day credit terms. For new clients, project-based work, or customers in financially volatile industries (construction, hospitality, retail), requiring a 20-50% deposit upfront materially reduces your exposure. You might lose some deals, but you will avoid some very painful unpaid invoices.

Shorten Your Payment Terms

The longer your credit terms, the more exposure you carry at any point in time. Many Australian SMEs are moving from Net 30 to Net 14 or even 7-day terms. If a client pushes back, offer a small early payment discount (1-2%) to incentivise prompt settlement. Shorter terms also mean you discover payment problems faster, while there is still time to act.

Register Security Interests on the PPSR

If you supply goods on credit, register your retention of title clause on the Personal Property Securities Register. This costs a small fee per registration and elevates your status from unsecured creditor to secured creditor for those specific goods, dramatically improving your position if the customer becomes insolvent.

Use Automated Payment Reminders to Collect Early

One of the most effective insolvency protection strategies is simply getting paid faster. The earlier you collect, the less exposure you carry if a customer runs into trouble. PaidMate integrates with Xero to automatically send professional, on-brand payment reminders before and after due dates — so your invoices are collected quickly without you having to think about it.

A client who is heading towards financial trouble will often continue paying whoever is asking consistently. The businesses that lose out are often those whose invoices got buried because no one followed up. Automated reminders keep you at the front of the queue, politely but persistently.

Trade Credit Insurance

For businesses with high revenue concentration in a small number of clients, or those supplying to sectors with elevated insolvency risk, trade credit insurance is worth exploring. Policies from providers like Atradius, Coface, and QBE cover losses from customer insolvency and protracted default, usually up to 80-90% of the invoice value. Premiums vary based on your debtor book, but for some businesses the protection is well worth the cost.

Prevent the Next Bad Debt

The best protection against customer insolvency is getting paid before problems develop. PaidMate keeps your invoices front-of-mind for every client — automatically, professionally, and without burning bridges.

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