It doesn't seem like rocket science to suggest that if a customer goes bust, you might want to stop supplying them; in fact, if you're doing your credit control properly, you'll probably want to restrict their account long before they publicly declare insolvency.

Under new government plans, due to come into force this October, you might find you are banned from taking such action, once your customer's financial woes are made public knowledge.

The frankly ludicrous new rules will mean that, if you are an 'essential' supplier, for example of gas, electricity, water or business-critical IT services, you will be legally required to continue supplying a business customer when they go into administration, until either the business is successfully rescued, or it goes bust completely.

Insolvency practitioners are being asked to provide a personal guarantee of the money owed to suppliers for these services, and they are also being bumped up the list of preferred creditors - which in effect means all other suppliers of non-essential goods and services just got even less likely to receive any payout from customers who go bust.

A rising recovery rate?

Four years of campaigning have gone into these new rules - on March 1st 2011 in the House of Commons, a roundtable event saw the proposals given their first airing, and it has taken until now for them to make it into upcoming law.

Insolvency trade body R3 originally estimated that such changes could enable as many as 2,000 more businesses each year to be rescued - although that was based on a more widespread regime change, rather than limiting the proposals to utility providers and IT suppliers.

We spoke to R3 to find out more of the background to these proposals, and they told us that the UK already has a good business rescue culture - these changes are simply designed to improve that.

They do so by removing some of the obstacles that remain in the way of saving businesses and the jobs of their employees, although R3 would still like to see them go further.

Giles Frampton, president of the organisation, said: "We would like to see more types of suppliers added to the list of those prevented from trying to steal a march on other creditors and take advantage of their importance to struggling businesses."

Carving a niche

Interestingly, R3 also told us that while they do not have figures for how many successful business rescues are carried out each year (but are in the process of compiling them), there were about 17,000 corporate insolvencies in 2014.

Of these, more than 2,000 resulted in a business rescue procedure - whether or not this was successful - meaning these new rules could apply to just one in nine corporate insolvencies overall.

There is of course the chance that more businesses in general will attempt recovery from administration, if they have more confidence regarding their key supplies; the time between now and October, and the months that follow, will provide a clearer picture on this.

Proactive on payments

What does all of this mean for creditors? Well, as mentioned above, it restricts key suppliers - utilities and IT - so that you cannot cut off a business customer for going into administration, or even charge them a higher tariff or penalty fees.

In return, you receive a personal assurance from their insolvency practitioner of any money you are owed, and the right to apply to the courts to cut off the supply due to hardship; you also get preferred creditor status.

For everybody else, if a client goes bust, it means their utility providers now outrank you in terms of who gets paid first, making it even more important to keep a close eye on your credit control and take swift action if a customer shows signs of credit distress.

Interestingly, it is likely to prove impossible for any such sanctions to be applied before a company goes into administration, or before that fact is made public - so if you cut off the supply ahead of any such announcement, you should be acting perfectly within your rights.

As such, the move may well backfire spectacularly, with the potential for utility providers and IT suppliers to cut off business customers even sooner than they have done in the past, as a pre-emptive measure when they show the first signs of being unable to pay.