When One Buyer Sets the Tempo: A Concentration Risk Score for UK SMEs

Concentration is a governance question, not just a sales one

A large customer can be a sign of commercial success. It can also quietly shape the company's calendar, credit lines and hiring plans. When one buyer accounts for a material share of revenue, the board is no longer simply monitoring a sales account; it is monitoring a dependency. That distinction matters in 2026, when many UK SMEs are balancing cautious demand, tighter credit checks and the cost of holding stock or staff to serve a single important client.

The test below is deliberately simple. It is not a credit score and it does not replace legal or accounting advice. It is a structured way to bring the question into the boardroom before a renewal, a volume change or a late payment forces the issue.

The five inputs

Each input is scored from 1 to 5, where 1 represents low risk and 5 represents high risk. The definitions should be agreed in advance, because the value of the exercise lies in applying the same standard each quarter.

Gross margin. Score 1 where the account's gross margin is comfortably above the company average and stable after service costs. Score 5 where the account is at or below average, or where discounts, returns, dedicated stock or special service have eroded the margin. A large account with thin margin can be both hard to lose and hard to keep.

Payment behaviour. Score 1 where invoices are paid within terms with few disputes. Score 5 where payment is routinely late, deductions are common or the customer uses payment terms as working capital. The point is not to judge the customer's character but to measure the cash burden it imposes.

Contract notice. Score 1 where there is a long notice period, clear renewal terms and no immediate termination right. Score 5 where the arrangement is verbal, rolling, short-notice or dependent on a buyer's discretion. A strong relationship is not a contract; notice periods are what give the business time to react.

Replacement cost. Score 1 where equivalent revenue and margin could be replaced within a quarter at modest cost. Score 5 where replacement would take more than a year, require new capacity, regulatory approval or a different route to market. Replacement cost should include sales time, marketing spend and any idle assets left behind.

Cash exposure. Score 1 where unpaid invoices, work in progress, dedicated stock and deposits are modest relative to cash reserves. Score 5 where the account absorbs a large share of working capital or where a payment delay would force the company to use overdraft, invoice finance or supplier forbearance.

A weighted score

Not every input carries the same weight. A short notice period is serious, but a customer that also holds a large amount of unpaid work is more serious still. The following weights sum to 20, so the total score runs from 20 to 100.

| Input | Weight | Low risk (1) | High risk (5) | | Gross margin | 4 | Above company average and stable | At or below average after service costs | | Payment behaviour | 4 | Pays within terms, few disputes | Routinely late or deduction-heavy | | Contract notice | 3 | Long notice, clear renewal | Verbal, rolling or short notice | | Replacement cost | 5 | Replaceable within a quarter | More than a year or major new capacity | | Cash exposure | 4 | Modest relative to reserves | Large share of working capital |

Multiply each score by its weight and add the results. A score of 20 to 44 suggests the account is material but manageable. A score of 45 to 64 warrants a protect-or-reprice review. A score of 65 to 79 points to a deliberate reduction in dependence. A score of 80 to 100 is a board-level vulnerability that should be addressed before the next renewal.

From score to decision: protect, reprice or reduce

The score is not a verdict on the customer. It is a prompt for a decision.

Protect. Where margin is sound, payment is reliable and notice is adequate, the right response may be to protect the account. That can mean formalising service levels, documenting the commercial terms and ensuring the account does not become a single point of failure in operations. Protection is not the same as complacency; it should include a named deputy for the account and a contingency plan for a sudden volume change.

Reprice. Where the account is large but thin on margin, the board should test a repricing conversation. The case is stronger when the company can show the cost to serve: dedicated stock, special packaging, out-of-hours support or delivery frequency. Repricing may take the form of a minimum order value, a service charge, revised payment terms or a volume band. The aim is not to punish the customer but to make the relationship sustainable.

Reduce. Where replacement cost is high and cash exposure is heavy, the company may need to reduce dependence even if the account is profitable. That can be done gradually: cap the share of capacity allocated to the account, develop two or three smaller customers in adjacent markets, or require deposits for bespoke work. A planned reduction is safer than a sudden loss.

Putting the test into the board cycle

The concentration score should be reviewed at least quarterly and whenever a customer crosses a threshold, such as 20 per cent of revenue or 30 per cent of gross profit. The board should minute the score, the assumptions behind it and the action owner. If the company uses invoice finance or a bank facility, the finance director should also test how a payment delay from the account would affect covenant headroom.

For UK SMEs, the discipline is particularly useful before annual contract renewals and before committing to new premises, vehicles or staff. Growth that depends on one buyer is not automatically bad, but it should be priced, documented and governed. The customer you cannot afford to lose may also be the one you cannot afford to keep without a clearer view of the risk.