Insolvency – Early Warning Signs among Customers and Suppliers

In recent years, the number of bankruptcies in Sweden has increased. High interest rates, rising costs, a weak economy and global uncertainty have all contributed to this trend. In such a climate, it is particularly important to be able to identify the early warning signs of financial distress in business partners – including both customers and suppliers. Failure to pay by a customer or inability to deliver goods by a supplier may have devastating consequences for your own business. Below, we outline some common signs that a customer or supplier is, or is about to become, insolvent, as well as preventative measures you can take.

What is insolvency?

According to Chapter 1, Section 2 of the Swedish Bankruptcy Act (Konkurslagen), insolvency is defined as a debtor being unable to pay their debts as they fall due and that this inability is not merely temporary. There can be many underlying causes of insolvency, such as missed customer payments, increased operating costs, or sudden market changes.

Warning signs

Some signs to watch out for include:

• Delayed payments: A common early indicator is customers consistently paying invoices late.
• Decreased order volume: A drop in orders may indicate reduced financial capacity on the part of the customer.
• Delivery disruptions: For suppliers, difficulties in delivering goods on time or missed deliveries may indicate financial trouble.
• Registered payment defaults: The presence of payment orders or cases with the Swedish Enforcement Authority (Kronofogden) suggests serious payment issues.
• Other legal disputes: If a customer or supplier is involved in legal disputes, this can create uncertainty.

Preventive measures

If you suspect that a business partner is experiencing financial difficulties, it is wise to adopt a proactive approach. Some concrete steps include:

• Increased monitoring: Regularly reviewing payment history and conducting credit assessments.
• Securities and advance payments: In cases of uncertainty, it may be appropriate to request advance payment or collateral.
• Flexible terms: Adjust contracts, volumes, or payment terms as the risk profile changes.
• Alternative partnerships: Consider alternative customers and suppliers to reduce dependency.

CMS Wistrand has extensive experience in insolvency law and can advise on contract renegotiations, the handling of claims and actions to take in the event of a counterparty's bankruptcy. Please do not hesitate to contact us if you have any questions about insolvency or if you would like to discuss preventive measures.