Customer concentration risk: how to measure it and reduce it

By Buzz Accounting · 13 July 2026

Investors, lenders and buyers of a business often ask what percentage of your revenue comes from your largest customer. They ask early, usually as part of due diligence, and the answer can affect the valuation.

What customer concentration risk is

Customer concentration risk is the exposure created when too much of your income depends on too few customers. Take a startup billing £240,000 a year, with one client providing £150,000 of it. If that client leaves, the company loses 62.5% of its revenue, with only the notice the contract requires, which is often thirty days and sometimes none.

A company with one large client and a company with many small ones can look the same on a profit and loss account. Concentration only shows when revenue is split by customer, so investors ask for that split early in due diligence.

Why investors, lenders and buyers check it

Investors value revenue that is likely to continue. £240,000 spread across many customers is worth more to them than £240,000 that depends mainly on one, because next year's revenue is less likely to fall sharply.
Lenders test whether you could still make the loan repayments if your largest contract ended.
Buyers often reduce the price or change the structure of the deal, for example with an earn-out that pays only if the major client stays, or part of the price held back for a retention period. Concentration can reduce both the price and how much of it you receive.

A client that provides most of your revenue also has more power in negotiations over price and payment terms, because it knows you cannot easily afford to lose it.

Concentration thresholds

There is no legal threshold, and the right level varies by sector. As a working guide, a single customer above 25% of revenue should be discussed at board meetings, and above 40% it should shape the board's decisions about sales priorities and notice periods. Also track the share of your top three customers, because three clients at 20% each carry a different risk from one client at 60%, and the largest-customer figure alone does not show that.

Monthly management accounts can show revenue by customer. A founder who can tell an investor "our largest client is 18% of revenue and falling, and our top three are 41%" shows that they understand the business. Our runway and forecasting guide covers setting up that reporting.

Worked example: losing the largest client

Illustrative figures. A two-year-old software company sells to other businesses. Revenue £240,000. Fixed monthly costs of £14,000 covering two salaries, software and an office. Cash in the bank £38,000. The largest client, a retail group, pays £12,500 a month, which is £150,000 a year, or 62.5% of revenue, on thirty days' notice.

The retail group gives notice in March:

Monthly revenue drops from £20,000 to £7,500 against £14,000 of fixed costs. The business goes from £6,000 a month positive to £6,500 a month negative, a £12,500 swing.
£38,000 of cash divided by a £6,500 monthly burn is 5.8 months of runway.
The client does not pay its last two monthly invoices of £15,000 each, which is £25,000 plus £5,000 of VAT, so £30,000 is outstanding.

The company can recover three things:

Statutory interest. Under the Late Payment of Commercial Debts (Interest) Act 1998 you can charge 8% above the Bank of England base rate on a late business-to-business invoice, unless your contract sets a different rate. The base rate has been 3.75% since 18 December 2025, so statutory interest runs at 11.75%. On £30,000 that is £3,525 a year, or £9.66 a day. Forty-five days late is £434.70.
Fixed debt recovery compensation. On top of the interest, late payment legislation lets you charge a fixed sum per invoice: £40 on debts up to £999.99, £70 from £1,000 to £9,999.99, and £100 on debts of £10,000 or more. On these two invoices that is £200.
VAT bad debt relief. You have already paid HMRC the £5,000 of VAT on an invoice nobody paid. Once six months have passed since the later of the due date and the date of supply, and you have written the debt off in your day-to-day VAT accounts and transferred it to a separate bad debt account, you reclaim the £5,000 on your VAT return. The claim can be made up to four years and six months after the later of the due date and the date of supply.

Together that is £5,000 + £434.70 + £200 = £5,634.70, which covers most of one month's £6,500 shortfall.

How to reduce concentration risk

Measure it every month. Concentration rises whenever your largest client grows faster than the rest. Put revenue by customer and the top-three share in the monthly management accounts, so you can see the trend before the level becomes dangerous.
Lengthen the notice period on your largest contract. Moving from thirty days' notice to ninety leaves your concentration percentage unchanged and gives you three times as long to react. It is often the quickest and cheapest step on this list.
Set a limit at board level. For example, no single client goes above 35% of forecast revenue without a plan to win more customers. The rule applies even when the large client is buying more.
Turn one-off work into recurring revenue with your smaller clients. A wider base of recurring clients makes your revenue more reliable.
Get the payment terms right and enforce them. The law makes a payment late 30 days after the invoice or delivery where nothing is agreed, and caps agreed business-to-business terms at 60 days unless a longer period is fair to both sides. If your biggest client pays on 90 days, more of your cash is tied up with that client, and more is at risk if it leaves.
Check whether your major clients hold a Fair Payment Code award. The Small Business Commissioner's code, which replaced the Prompt Payment Code in December 2024 and had 767 award holders in September 2026, awards Gold to businesses paying at least 95% of invoices within 30 days, Silver for 95% within 60 days including 95% of small-business invoices within 30, and Bronze for 95% within 60 days. The list of award holders is public and free to check.

How we help

We prepare monthly management accounts that show revenue by customer and the share of your top three customers. When a customer does not pay, we work out the statutory interest, the fixed recovery sum and the VAT bad debt relief you can claim. Our corporation tax guide covers how bad debts are treated in the tax computation. Get started.

Common questions

What level of customer concentration is too high for a startup?

There is no legal threshold, so it is a commercial judgement. As a working guide, any single customer above 25% of revenue should be discussed at board meetings, and above 40% it should shape decisions about sales priorities and notice periods. Track your top-three share as well as the largest customer's share, because three clients at 20% each carry a different risk from one client at 60%. Contract terms matter too. A largest customer that can leave on thirty days' notice is a greater risk than a government customer on a five-year contract.

How much interest can I charge a business client who pays late?

Statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 is 8% above the Bank of England base rate. The base rate has been 3.75% since 18 December 2025, so the statutory rate is currently 11.75% a year. On a £30,000 invoice that is £3,525 annually, £9.66 a day. You cannot claim statutory interest if your contract sets a different rate, and you cannot use a lower rate for public authority customers. You can also charge a fixed recovery sum per invoice: £40 up to £999.99, £70 to £9,999.99, and £100 at £10,000 or more.

Can I get the VAT back on an invoice a customer never paid?

Yes, through VAT bad debt relief. Three conditions apply: you must have accounted for and paid the VAT to HMRC, the debt must be at least six months past the later of the payment due date and the date of supply, and you must have written it off in your day-to-day VAT accounts and transferred it to a separate bad debt account. You then reclaim the VAT on your return. The deadline is four years and six months from the later of the due date and the supply date, so a debt written off two years ago may still be claimable.

Do investors discount a business for customer concentration?

Yes. Investors value revenue that is likely to continue, so revenue that depends on a few customers is usually valued at a lower multiple than the same revenue spread across many. Buyers often also change the structure of the deal, tying part of the price to an earn-out that only pays if the major client stays, or holding back part of the price for a retention period. Lenders test whether you could keep up repayments after losing your largest customer. Reducing concentration before a raise or a sale can improve both the price and how much of it you receive.

What is the fastest way to reduce the damage without losing the client?

Extend the notice period. Renegotiating your largest contract from thirty days' notice to ninety leaves your concentration percentage unchanged and gives you three times as long to find new customers before the revenue stops. Tighten payment terms at the same time. Where nothing is agreed, the law makes a payment late 30 days after the invoice or delivery, and agreed business-to-business terms are capped at 60 days unless a longer period is fair to both parties.