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The Impact of Bankruptcy on Your Customers: Maintaining Relationships

By Diane Amato

Published July 25, 2023 • 3 Min Read

As a business owner, you’ve poured your heart and soul into building your brand. However, sometimes unforeseen circumstances can lead to overwhelming financial challenges, which may result in bankruptcy. Part of dealing with it is to recognize the profound impact it may have on your valued customers.

Many business owners want to rebuild and choose to create a new business after bankruptcy. After emerging from bankruptcy, rebuilding customer trust is crucial for the new business’s survival.

Bankruptcy versus insolvency

Bankruptcy and insolvency are related but aren’t the same.

  • Bankruptcy is a legal process that aims to resolve debts when a business is no longer able to meet its financial obligations.

  • Insolvency occurs when a business can’t pay its debts as they come due. Insolvency may — but doesn’t have to — lead to bankruptcy.

Whether you’re a sole proprietorship, a partnership or a corporation, anytime a business must file for bankruptcy, it affects various stakeholders, including customers, who play a crucial role in your business’s success.

Maintaining customer relationships

Because customers often experience frustration and uncertainty, customer complaints increase during bankruptcy. Effective management of customer complaints is essential to help minimize damage to your reputation.

Here are some key methods to help maintain customer relationships:

  • Prompt communication: Respond to customer complaints. Timely responses, even if only to provide updates, may go a long way in assuaging customer anxiety.

  • Transparency: Be transparent about bankruptcy and its impact on customer orders: Provide accurate information about refunds, warranties, or any available alternatives.

  • Empathy and understanding: Assure customers that their complaints are being taken seriously. Anyone who deals with customers should handle complaints with sensitivity and professionalism.

  • Solutions and alternatives: Whenever possible, offer possible solutions or alternatives. This could include refunds, arranging alternative suppliers, or fulfilling orders through partnerships.

Strategies to help rebuild customer trust

Building customer trust in new — and potentially former — customers is key if you want to start another business after bankruptcy. This may take a while, but here are some key ways that can help:

  • Communication: Communicate openly about the steps you took during the bankruptcy process — and the measures you’re taking to prevent a recurrence. Share the lessons learned. Assure customers of the company’s commitment to satisfaction and welfare.

  • Consistent service: Focus on delivering consistent and reliable service to customers. Rebuilding trust requires a track record of fulfilling promises, meeting deadlines, and delivering on commitments.

  • Customer incentives: Offer incentives, discounts, or loyalty programs to entice customers back and reward their support. These gestures can help demonstrate the company’s dedication to rebuilding relationships.

  • Enhanced customer support: If possible, strengthen your customer support channels and actively ask for feedback. Demonstrating responsiveness to customer needs will help regain their trust and loyalty.

  • Rebuilding brand reputation: Showcase any positive changes, new strategies, or innovative offerings demonstrating your company’s recovery and growth.

Business bankruptcies have far-reaching consequences for customers, causing disruptions to orders, contracts, and customer relationships. By employing prompt communication, transparency, and proactive efforts to rebuild trust, business owners can help minimize customer impact and start a path toward recovery.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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