Behind every business insolvency statistic - and the statistics have been running uncomfortably high - there is a set of other businesses absorbing the impact. When a company fails, its unpaid suppliers become unsecured creditors, a phrase whose practical meaning is: likely to receive little of what they are owed, late, after a process they do not control. When the failed company was instead a supplier, its customers lose a link in their operating chain with whatever notice the collapse provided, which is often none. Banks have a name for this exposure - counterparty risk - and entire departments to manage it. Small businesses have the same exposure, frequently more concentrated, and typically no process at all: the risk is discovered on the day it materialises, as a customer's unpaid balance or a supplier's unanswered phone.
The customer side of the risk is the more painful because it converts work already done into a loss. A business that has delivered goods or services on invoice has, in effect, made an unsecured loan, and the size of that loan - everything currently invoiced and unpaid, plus work in progress - is a number every owner should be able to state per major customer and often cannot. Concentration makes it existential: when one customer represents a third of revenue, that customer's failure is not a bad debt but an event that threatens the business itself, and the warning signs tend to be visible in retrospect - payments stretching from thirty days to sixty to ninety, contact becoming harder, orders becoming erratic. A slowing payer is not always a dying company. But every dying company was first a slowing payer, and the businesses that escape the worst are the ones that treated the slowdown as information rather than awkwardness.
The defences on the customer side are mundane and effective in proportion to how early they are applied. Watch payment behaviour as a signal, not just a nuisance, and respond to deterioration by tightening rather than hoping: shorter terms, smaller outstanding balances, deposits or staged payment for new work, and a willingness to pause further delivery while the balance is high - the supplier who keeps delivering into a failing customer is volunteering to be its largest involuntary lender. Check what can be checked before extending significant credit; public filings and credit information are imperfect but not nothing. And price the risk into how you grow: pursuing revenue concentration in one large customer is also purchasing concentrated exposure to that customer's health, a cost that never appears on the invoice.
The supplier side asks the mirror-image question: which of the businesses you depend on would hurt most if it vanished, and what is the plan? For the critical few - the supplier of the component only they make, the service provider whose failure would halt your delivery - the mitigations are knowing an alternative before you need one, avoiding being a trivial customer of a fragile firm for anything essential, and noticing the same distress signals customers emit: declining service, staff departures, sudden demands for prepayment. None of this requires pessimism about anyone in particular. It requires accepting that in a period of elevated failures, some of the businesses around you will not survive, that you do not get to choose which, and that the difference between an absorbed shock and a transmitted one is preparation done while the counterparty still looked fine. Insolvency is contagious through exactly one vector - money owed and dependence unmanaged - and both ends of it are, with modest effort, manageable.