How to Avoid Partnering with Risky Businesses in the UK.pdf

Doing business always involves some degree of trust. Whether you are supplying goods on credit, entering a joint venture, or outsourcing a service, you rely on the other party to deliver on their commitments. In the UK’s current economic climate, where corporate insolvencies remain at historic highs, that trust has never been more important. Partnering with the risky business can quickly lead to unpaid invoices, disrupted operations, and even financial instability for your own company. For directors, the challenge is clear: how do you avoid risky business relationships without losing opportunities? This article explores the warning signs, due diligence strategies, and practical steps directors can take to protect themselves. It also highlights how the right professional advice, including from insolvency experts like Simple Liquidation, can safeguard your company from unnecessary exposure.

1. How to Avoid Partnering with Risky Businesses in the UK
0 Comments / Business Recovery / By Viv1
Doing business always involves some degree of trust. Whether you are supplying goods on credit, entering a joint venture, or outsourcing a service, you rely on the other
party to deliver on their commitments. In the UK’s current economic climate, where corporate insolvencies remain at historic highs, that trust has never been more
important. Partnering with the risky business can quickly lead to unpaid invoices, disrupted operations, and even financial instability for your own company.
For directors, the challenge is clear: how do you avoid risky business relationships without losing opportunities? This article explores the warning signs, due diligence
strategies, and practical steps directors can take to protect themselves. It also highlights how the right professional advice, including from insolvency experts like Simple
Liquidation, can safeguard your company from unnecessary exposure.
Why Risk Matters More in 2025
UK company insolvencies have been climbing steadily in recent years. In July 2025 alone, more than 2,000 companies entered insolvency. Creditors’ Voluntary
Liquidations (CVLs) made up the majority of cases, alongside a rise in compulsory liquidations and administrations.
For business owners, this environment creates a domino effect. If a supplier, customer, or partner collapses, the impact can cascade down the supply chain. You may face
unpaid debts, delayed projects, or the need to find replacements at short notice. Even large firms, once considered safe, are vulnerable. High-profile collapses in steel,
retail, and construction show how quickly fortunes can change.
Warning Signs of a Risky Business Partner
Spotting trouble before it reaches crisis point is essential. Some of the most common red flags include:
1. Late or Erratic Payments
If a customer pays late on multiple occasions or changes payment terms without warning, it may indicate cash flow issues.
2. Frequent Management Changes
Regular changes in directors, particularly resignations, can signal internal instability.
3. CCJs and Court Actions
County Court Judgments (CCJs), winding-up petitions, or statutory demands against a company are strong indicators of financial distress.
4. Aggressive Discounting or Overpromising
If a business suddenly offers steep discounts or guarantees unrealistic delivery times, it may be a tactic to generate short-term cash rather than a sustainable business
model.
5. Poor Communication
Delays in responding, vague explanations, or reluctance to share financial information can all suggest problems behind the scenes.
Due Diligence: Protecting Your Business
Due diligence is the process of gathering and analysing information before making a business commitment. While large corporations often have entire departments
devoted to it, smaller businesses can still adopt effective practices.
1. Company Searches
Check the company’s registration details on Companies House. Look at filing history, overdue accounts, and director information. Consistent late filings or a history of
dissolved companies can be warning signs.
2. Insolvency Checks
Use insolvency registers to see whether the business, or its directors, have been involved in insolvency proceedings. Insolvency Service records and credit reference
agencies can provide useful insights.
3. Credit Reports
Commercial credit reports provide scores and payment histories. These reports highlight whether a company regularly pays suppliers on time or has outstanding court
judgments.
4. Trade References
Speak to other suppliers or customers. Honest feedback from those who have worked with the business is invaluable.
5. Contractual Protections
Where possible, structure agreements to reduce risk. This may include shorter payment terms, retention of title clauses, or staged delivery payments.
How Insolvency Trends Affect Risk
Understanding broader insolvency trends helps directors interpret risk more effectively.
Construction: The sector continues to account for the highest share of insolvencies, around 17% of the UK total. Reliance on subcontractors and long payment
chains make this industry particularly vulnerable.
Hospitality: Rising costs and consumer cutbacks have pushed more than 1,700 businesses into insolvency in the first half of 2025.
Retail: Several high-street names face restructuring or administration, a reminder that even established brands can be risky partners.
If your company relies heavily on businesses in these sectors, enhanced vigilance is crucial.
Why Directors Cannot Afford to Ignore Risk
Directors have a duty to protect their companies, employees, and stakeholders. Entering into partnerships with financially unstable businesses may not only harm cash
flow but could also create reputational damage and operational disruption.
In some cases, failing to perform proper due diligence could even be considered a failure of directors’ duties. Courts expect directors to act with reasonable care and
prudence. Ignoring warning signs is rarely defensible.
How Simple Liquidation Helps Companies Stay Protected
Simple Liquidation was designed to provide directors with a quick and straightforward solution to liquidate a company. However, our expertise extends beyond
liquidation. With over 30 years of combined experience, our licensed insolvency practitioners, Jamie Playford (FABRP MIPA) and Alex Dunton (MABRP), have dealt with
hundreds of solvent and insolvent businesses.
This experience means we understand how businesses fail, what warning signs to look for, and how to guide directors who may be exposed to risky partners. We are not
intermediaries or salespeople. We are licensed professionals, authorised by the Insolvency Practitioners Association and the Institute of Chartered Accountants in
England and Wales, and members of the Association of Business Recovery Professionals (R3).
If you are concerned about the stability of a partner, customer, or supplier, we can help you interpret the risk and decide on a sensible course of action.
Practical Steps if You Suspect Risk
If you identify that a partner company may be struggling, there are several practical actions to take:
1. Limit Credit Exposure: Reduce or stop supplying on credit. Switch to pro forma invoicing where possible.
2. Review Contracts: Ensure retention of title clauses are in place so you can reclaim goods not paid for.
3. Diversify: Avoid over-reliance on one partner or supplier. Spread risk across multiple relationships.
4. Monitor More Closely: Keep track of payments and maintain communication. Spotting issues early gives you time to react.
5. Seek Professional Advice: If in doubt, speak with insolvency experts. A quick consultation can clarify whether you should continue working with a business or
withdraw.
Why Cost-Effective Advice Matters
Many directors hesitate to seek professional advice due to concerns about cost. However, failing to act can often be far more expensive. Entering into agreements with
failing businesses may result in unpaid debts or even force your own company into insolvency.
Simple Liquidation understands these pressures. Our services are designed to be transparent and cost-effective, ensuring directors receive the guidance they need
without prohibitive expense.
Conclusion
In today’s business environment, avoiding risky partnerships is no longer optional. With insolvencies at some of the highest levels seen in a decade, directors must be
proactive, cautious, and well-informed. Early checks, clear contracts, and professional guidance are the keys to protecting your business.
Simple Liquidation is here to help. Whether you need to close your own company through a cost-effective liquidation or simply want reassurance about the stability of a
partner, we can provide clear, professional advice. Our licensed insolvency practitioners bring decades of experience, giving directors confidence that they are acting in
the best interests of their business and its stakeholders.
If you are worried about exposure to risky businesses, or want to discuss your options in confidence, contact us today for a no-obligation conversation. With the right
advice and early action, you can safeguard your company’s future and avoid the costly consequences of working with the wrong partners.
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