A major customer giving notice is rarely a profit problem first. It is a timing problem. Revenue stops on a known date, while wages, leases, loan repayments, GST and PAYE carry on as before. The owners who come through it well are the ones who treat the notice period as a planning window rather than a countdown.
This guide is for established New Zealand SMEs that have just learned a large customer is leaving: a supermarket range review, a construction client taking work in-house, a government agency cutting a contract, or a distributor switching suppliers. It sets out what to do in the first 90 days, in the order that protects cash.
Why is the real squeeze usually after the customer leaves?
Because the customer keeps paying you for a while after the work stops.
Take a business on 20th-of-the-month terms. The last month of supply is invoiced at the end of that month and paid around seven weeks after the work began. During those weeks, cash still looks normal. Debtors are still converting. The bank balance does not yet reflect the change.
Then the final payment lands and nothing replaces it. That is the point when the overdraft starts moving the wrong way, often a month or two after the customer has actually gone. Owners who watch only the bank balance tend to react late, because the balance is the last number to move.
Three other costs make the gap deeper:
- Fixed costs don’t shrink with the revenue. Rent, finance repayments, insurance, software and salaried staff stay the same unless you change them.
- Stock and work in progress built for that customer may be slow to sell elsewhere, or only at a discount.
- Tax is based on last year. If you pay provisional tax on the standard option, your instalments are calculated from a year that included the lost customer.
What should you do in the first two weeks?
Read the agreement properly
Check the notice period, any minimum volume or take-or-pay commitments, who owns customer-specific stock, tooling or packaging, and what happens to orders already placed. Some supply agreements require the customer to buy out dedicated stock or pay for committed volumes. Get your lawyer to confirm what you can claim before you agree to anything on the wind-down.
Protect the final invoices
A departing customer has less reason to pay on time and more reason to dispute. Invoice promptly as each delivery or milestone is completed, confirm the remaining balance in writing, and agree a clear end date for the last order. If you supply goods on credit, make sure your retention-of-title terms are in place. Our debtor management guide covers collection without damaging the relationship, which matters if you want them back one day.
Rebuild the forecast around the exit date
Your existing budget is now wrong. Rebuild a 13-week cash flow forecast with the customer’s receipts ending on the date the last invoice will actually be paid, not the date supply stops. Then extend a simpler monthly view out to 12 months, because the low point is often beyond 13 weeks.
Run two versions: one where no replacement work arrives for six months, and one with a realistic pipeline. The gap between them tells you how much breathing room you need.
How do you work out the size of the hole?
The lost revenue is not the number that matters. The lost contribution is: revenue less the direct costs that go away with it.
| Item | What to look at |
|---|---|
| Lost revenue | Annual sales to the customer, by month |
| Direct costs that stop | Materials, freight, packaging, commissions, casual labour |
| Costs that continue | Permanent staff, rent, equipment finance, overheads |
| Stock left over | Customer-specific stock and its realistic resale value |
| One-off costs | Restructuring, marketing to replace the work, write-downs |
If a customer was 30% of revenue at a 35% contribution margin, the profit at risk is roughly 10% of turnover, which may be more than the business earns in a normal year. Seeing the figure in this form usually settles whether the plan is “bridge to replacement work” or “reshape the business”.
Should you re-estimate provisional tax?
If you pay provisional tax and expect a lower profit this year, look at it now. Inland Revenue’s estimation option is designed for businesses whose income is expected to change, and you can re-estimate on any instalment date or any other date up to the final instalment.
Re-estimating can reduce the instalments still to come, which is real cash in the months when you need it most. The trade-off is that if your estimate proves too low, interest applies and a penalty is possible, so base it on the forecast, not on hope. Your accountant can run the numbers in an afternoon.
If you already have tax arrears, our guide to IRD debt options explains the choices before they compound.
What about staff?
For many SMEs, labour is the largest cost that can change. It is also the one that needs the most care.
Employment New Zealand is clear that changes affecting jobs need genuine business reasons and a fair process, and that redundancy should be a last resort after redeployment options have been explored. That means a written proposal, real consultation with the affected people, and genuinely considering their feedback before deciding.
The practical point for cash planning is timing. A proper process takes weeks, notice periods follow, and final pay must include unused holidays and any redundancy compensation your employment agreements provide for. If you think roles may be affected, start the process early in the notice period rather than in the month the revenue disappears. Many owners also look first at overtime, contractors, unfilled vacancies and redeploying people into sales or new projects.
When should you talk to your lender?
Before you have to.
Most business facilities include reporting obligations, and many include financial covenants such as interest cover or debt-to-earnings ratios. Losing a large customer can push those ratios out of line at the next test date. Our guide to loan covenants and reporting explains how they are measured.
A short conversation now, backed by the forecast and your plan, gives the lender a reason to work with you: perhaps a temporary covenant waiver, a change to the repayment profile or a short interest-only period. The same news delivered after a breach tends to get a firmer response.
Bring three things:
- The rebuilt forecast, showing the low point and when it occurs.
- Your cost and replacement-revenue plan, with dates.
- Up-to-date management accounts, so the lender is not working from last year’s annual accounts.
If the forecast shows a gap your current bank can’t cover, a 60-second enquiry is a quick way to see what working capital options might fit while you rebuild.
Why does the timing of new funding matter so much?
Because the business looks strongest before the customer leaves.
Unsecured facilities are typically sized on recent turnover and bank statements. Six months after the customer has gone, those statements show a smaller business with a falling balance. Arrange a line of credit or working capital facility during the notice period and it is assessed on trading that still includes the lost revenue, with a plan that explains the change.
Property-secured funding depends less on recent trading, which makes it useful when the transition takes longer than planned. It can also be used to refinance or consolidate existing repayments onto a longer term, lowering the monthly commitment while revenue rebuilds.
Funding through us runs from $20k to $1m, unsecured or secured on New Zealand property, and property-secured loans can settle within 24 hours of approval in some cases. The aim is not to replace the lost profit with debt. It is to buy the months you need to replace the customer without selling assets, stretching suppliers or falling behind with Inland Revenue.
A worked example
Illustrative scenario only. Not a client.
A Canterbury food manufacturer employs 28 staff and turns over about $6m. A national retailer that takes 32% of its output announces a range review and gives 90 days’ notice. Trade terms are 20th of the month following.
The owner’s first forecast shows:
- Cash stays steady for almost four months, because final invoices are still being paid.
- From month five, the business runs about $70k a month behind, with the overdraft reaching its limit in month seven.
- About $140k of branded packaging and finished goods is specific to the retailer.
Over the next three weeks the owner:
- Negotiates with the retailer to take the remaining branded stock at cost under the supply agreement.
- Re-estimates provisional tax with the accountant, reducing the remaining instalments for the year.
- Pauses two vacant roles and stops weekend overtime, and starts a consultation process on one shift, which later leads to two roles being redeployed into a new food-service line rather than made redundant.
- Shares the forecast with the bank, which agrees a covenant waiver for the next two test dates.
- Arranges a $300k working capital facility secured on the commercial premises while the accounts still show the full year of trading.
Eight months later, two food-service contracts and an export trial have replaced about two-thirds of the lost volume. The facility was drawn to about half its limit at the low point and is being repaid from margin as the new work grows.
Replacing a customer takes time. Make sure you have it
Losing a major customer tests every part of a business, but it is survivable when you see the low point early and fund the gap before it arrives. You already know your exit date. What you need is enough runway to get from there to the replacement work.
That is exactly what we help established SMEs arrange, and here is how it works:
- The enquiry takes about 60 seconds, and there’s no credit check when you first enquire.
- We don’t send your details to a pile of lenders. No spray-and-pray, so your phone won’t fill up with calls from strangers.
- A real person looks at your business, including the customer you’re losing, the revenue that remains, your forecast and your security, and calls you to talk it through.
- Please fill the form in accurately. Your turnover, the amount you need and when you need it help us match the right facility first time.
Quick answers
How much of my revenue should one customer represent?
There is no fixed rule, but many lenders and buyers start asking questions once a single customer is above about 20% to 30% of revenue. Above that level, losing the customer can change the viability of the business rather than just its profit for the year.
Should I tell my bank that a major customer is leaving?
In most cases, yes, and early. Many facilities require you to tell the lender about material adverse changes, and a lender that hears about the problem from you, with a forecast and a plan, is usually far more flexible than one that finds out from a missed covenant.
Can I reduce my provisional tax if income is going to drop?
Yes. Inland Revenue's estimation option lets you estimate your residual income tax for the year and re-estimate up to the final instalment date. If the estimate turns out too low, interest and possibly a penalty can apply, so base it on a realistic forecast.
Do I have to make staff redundant if we lose a big contract?
Not necessarily. Many owners first redeploy people, reduce overtime and contractors, or put the spare capacity into winning new work. If roles do become surplus, New Zealand employment law requires genuine business reasons, consultation and a fair process before any decision.
Will a lender still fund my business after losing a major customer?
Often, yes. Lenders look at the revenue that remains, your margins, your plan for replacing the lost work and the security available. Property-secured funding relies less on recent trading, while unsecured facilities lean more heavily on bank statements, which is why timing matters.
What should I do with spare capacity during the notice period?
Use it to win replacement work while your team, equipment and reputation are still fully in place. A notice period is one of the few times you can pitch for new business without the pressure of an empty order book.