Your biggest client stops paying. The promises stop arriving, and then the administrators arrive.
The obvious move is to switch them off before the losses get worse – but in most cases… you can’t.
Under UK insolvency law, IT services count as an essential supply. The administrator can require you to keep services live, you may not be free to delete their data, and you carry on paying Microsoft for their licences while you queue behind the secured creditors for your own money.
“MSPs are considered an essential supply of services under the Insolvency Act. Like gas and electricity, they cannot just turn off that customer.”
– Kim Simmonds, Founder of Law365
How to know when a client is going into administration
Client insolvency rarely surprises the people closest to the account. It surprises the owner, because nobody escalated it. The warning signs are usually:
- Invoices have moved from 30 days to 60, with nobody mentioning it
- Project or onboarding work still going ahead on an account that is already in arrears
- You let NCE terms auto-renew for a client you’re already worried about
- Vendor invoices you have not reconciled against what you’re actually billing that client
- More than a fifth of your margin sitting with one client
- Payment promises that arrive by email and then move
- No one person is responsible for flagging a risky client
Why this catches out MSPs
Asking for money from a client you’ve known for 10 years feels like it will cost you the relationship.
The account manager doesn’t want to damage that relationship over an invoice. The service desk keeps delivering because nobody has told them to stop. The owner only finds out when the number is too big to ignore
By that point, two things have happened:
- The moment administrators arrive, your right to switch them off goes out the window
- Your vendor commitment has not narrowed at all, because under NCE you are on the hook for the annual term whether the client pays you or not.
The gap between those two facts is where the money goes.
It helps to understand why the law works this way. The essential supply rules exist to give struggling businesses a chance to survive, and a company cut off from its email, files and systems on day one has no chance at all.
The protection is aimed at the client, not at you. Knowing that in advance is the difference between planning for it and discovering it.
How to be prepared
- Set the number that forces a conversation.
Decide the arrears figure, or the number of days, that triggers an internal escalation and name the person who owns it. Without a threshold, the decision defaults to whoever is least uncomfortable having the conversation.
- Check that your contract lets you act.
You need a clear right to suspend after written warning, and a clause that allows you to call in the remaining licence fees for the term. Most MSPs have never tested whether their terms actually work.
- Reconcile your five largest accounts.
Match vendor invoices to what you are charging, client by client. Most MSPs know their revenue per client. Far fewer know their committed cost per client, and that is the number that decides what a failure actually costs you.
What this costs you
We worked with an MSP whose client went into administration owing them several months of fees, totalling over £10,000.
They couldn’t switch the licences off. Doing that would have deleted the client’s data, so the administrators made them keep the platform live while they worked through the estate. They kept paying Microsoft the whole time.
As Kim Simmonds puts it, an MSP holding £10,000 a month of licences for a larger client will still have to pay it, and is unlikely to see that money again. Unsecured creditors are lucky to get a penny in the pound.
None of that would have been recoverable after the event, but all of it would have been manageable before.
They now run a monthly check on their five largest accounts and escalate at a set number of days. It took an afternoon to set up.
What to do next
If you don’t know which of your clients could put you in this position, start with the numbers at account level rather than at company level.
Essential Finance Checks for Growing MSPs covers the contract clauses and the cash checks above, including the section on vendor reconciling and the clause that lets you pass on price increases. Download it, then run the check on your five largest accounts this week.
FREE Download: Essential Finance Checks for Growing MSPs
-
Know What You'd Actually Pay If a Claim Landed
Check if your contracts put a clear limit on what one bad incident could cost you, and if that limit matches how you work. -
Make Sure Your Insurance Responds the Way You Think It Will
Confirm what cover you hold, where the limits sit, and whether your policies and your contracts line up before you need them to. -
Stop a Late Payer Turning Into an Unfunded Cost
Build a simple three-stage debt and NCE policy your team can follow, so you act while you still have the right to.
Where this conversation goes next
This article covers one scenario, but it’s a small part of what Kim Simmonds shared on the scaleUP podcast.
In the full episode, Kim and Darren go deeper into:
- What happens to the IP when your team builds Copilot agents, and the two clauses that decide whether you own it
- An MSP who discovered, twenty years into running his business, that he had no professional indemnity and no cyber cover
- Why £250,000 of cyber insurance is no longer enough, and what insurers now expect your contracts to say
- How one master agreement plus order forms replaces renegotiating terms on every deal
If reading this made you want to check what your contracts actually say, that’s the right instinct. Watch the full episode, then go and look.
