What can a supplier do if you don’t pay for stock?

Can a supplier reclaim their stock if it hasn't yet been paid for?There are a number of things that can happen if you don’t pay for stock, the supplier may stop supplying you with stock, or they may start charging you interest on the outstanding amount. In some cases, the supplier may even take legal action against you.

If you find yourself in this situation, it’s important to act quickly and try to come to an agreement with the supplier. This may involve making a partial payment, or agreeing to a payment plan.

If you can’t reach an agreement, then you may have no choice but to close down your business. Whatever you do, don’t ignore the problem, as this will only make it worse

Can a supplier reclaim their stock if it hasn’t yet been paid for?

It’s not unusual for suppliers and vendors to offer credit to their customers. This arrangement allows businesses to purchase the goods and services they need without having to pay for them upfront. However, there are always risks involved when extending credit, and one of those risks is that the customer may not pay the bill.

If this happens, the supplier is left with unsold merchandise and a loss of profits. In some cases, the supplier may be able to reclaim their stock if it hasn’t yet been paid for. This process is known as repossession, and it typically requires the approval of a court. The supplier must prove that the merchandise was purchased on credit and that the customer has failed to make payments in a timely manner.

If repossession is granted, the supplier can retrieve their stock and sell it to another customer. However, repossession can be a time-consuming and expensive process, so it’s important to weigh all of the risks before extending credit.

The easiest option would be to return these goods back to the supplier, however this is not as easy as it sounds. You may have already have sold some stock on to your customers already, or if you are using raw materials they may have begun to be processed or incorporated into other products thereby altering their original state.

Should the products remain untouched or unsold, are you under obligation to return them and would your supplier have the right to demand their return or even forcibly remove them from your premises?

The answer to this depends on two main factors:

   1.      Has a retention of title clause been incorporated within the signed contract

   2.      Have the goods have been processed or incorporated into other products

Retention of Title

Retention of title (Rot) is a legal term that refers to the right of a seller to keep ownership of goods until the buyer has paid for them in full. Rot can be used to protect sellers from buyers who default on payments, as well as to secure loans and finance agreements. In some jurisdictions, Rot is automatically implied in certain types of contracts, while in others it must be explicitly stated.

Although Rot can be a useful tool for businesses, it is important to understand the potential risks and rewards before using it. For example, if a buyer goes bankrupt, the seller may not be able to reclaim the goods. In addition, Rot can complicate the sale of goods and make it more difficult to enforce payment.

As a result, businesses should carefully consider whether Retention of title is right for them. It is worth noting that should there not be a retention of title clause in your contract then the Sale of Goods Act 1979 means that the items become yours (or your company’s depending on who the contract was made with) once you take receipt of them.

Limitations of retention of title

Retention of title clauses are commonly used in commercial contracts to protect the seller’s interest in goods sold to a buyer. The clause states that ownership of the goods remains with the seller until the buyer has paid for them in full. While this may offer some protection to the seller, there are several limitations that should be considered.

  • Identifying the goods – While some retention of title clauses permit the supplier entering your premises to recover goods, once inside, the supplier will have to identify their own stock and differentiate it from any other items present. This may be tricky if it is stored in a warehouse housing a large amount of similar goods. The use of serial numbers of suppliers packaging can help with identification, but simply if the supplier cannot prove that the stock is theirs, they can’t take it away. 
  • Goods being processed – Once the goods enter the production process, any retention of title is usually unenforceable. This is especially the case once the goods have been incorporated into other products; separating them without causing damage is extremely tricky and in many cases impossible.
  • Perishable goods – Retention of title for perishable goods such as fresh food and other produce does not work very well. Should you offer a standard 30 day payment terms, by the time payment is overdue, it is likely that the goods will have passed their best therefore be worth nothing to the original supplier even if they could be recovered.

Variations of retention of title clause

Any business that sells goods on credit will want to protect its position if the buyer becomes insolvent. Without a retention of title (RoT) clause, the supplier would only be able to recover the value of the unpaid goods from the buyer’s estate and would not be able to claim for any loss of profit or other consequential losses.

A RoT clause allows the supplier to recover the goods or, if this is not possible, to claim for the value of the goods plus any consequential losses. The most common form of RoT clause is known as ‘title reserved’ and this gives the seller the right to retake possession of the goods if the buyer does not pay for them.

However, there are other variations of RoT clause which can be used to better protect the seller’s position. For example, a ‘fixture and fitting’ clause can be used where the goods are installed as part of a larger project, such as a fitted kitchen. This type of clause gives the seller the right to remove the goods if payment is not received.

Another variation is known as a ‘chargeback’ clause which allows the seller to reclaim money paid to a third party, such as a sub-contractor, if payment is not received from the buyer. By including an appropriate RoT clause in their contract, suppliers can reduce their exposure to bad debt and protect their business in the event of a buyer insolvency.

The retention of title clause should still remain in place should your company enter any other formal insolvency procedure. If this is the case, your supplier will need to speak to the insolvency practitioner that is handling the case about making a claim on their stock.  Should no retention of title clause in place, then the supplier will be treated the same as any other ordinary creditor.

Read more: Continuation of supplies during insolvency proceedings


If a supplier has not received payment for stock they have provided, there are a few steps they can take to attempt to recover the money owed to them. They can contact the buyer directly to request payment and try to resolve the issue through communication. If this approach does not work, the supplier may send a formal demand letter requesting payment within a specific timeframe.

If the buyer still fails to pay, the supplier may choose to take legal action, such as filing a County Court Judgment or hiring a collections agency to collect the debt. However, legal action can be time-consuming and costly, so it is generally a last resort. Ultimately, it is in the best interest of both parties to come to a mutually agreeable resolution, as unpaid debts can damage business relationships and reputations.

Insolvency & Restructuring Expert at Business Insolvency Helpline | + posts

With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.