Retailers going bust might lead to the steepest discounts for years, but it also raises the risk of them taking your hard-earned cash with them.

Consumers have recently discovered this to their cost, especially those who had booked holidays with the tour operator XL Leisure or ordered goods from the furniture chain MFI and are still awaiting refunds.

“This is the time of year when traders borrow heavily from banks to build up their stocks,” said Ingrid Gubbay, a consumer-law specialist at the legal firm Cohen Milstein.

“Banks have given traders a ‘banking holiday’ until the new year, which is when they will want to see those stocks turned into cash.

“If that doesn’t happen, we’ll hear a lot of talk about the administration, liquidation and insolvency of traders.”

However, there are ways you can protect your cash this Christmas. Here are our top five tips:

1 PAY BY CREDIT CARD

If a company becomes insolvent, it no longer has money to pay its creditors, but paying by credit card will protect you.

Section 75 of the Consumer Credit Act 1974 says that credit-card providers are “jointly and severally” liable with retailers. This means you have the right to reclaim money on goods worth between £100 and £30,000 that fail to turn up or are faulty. You claim from your card issuer if the retailer refuses to pay or has gone out of business.

Section 75 was recently extended to cover transactions made overseas or with foreign companies. This includes buying goods overseas by telephone, mail order or over the internet.

For a credit-card company to be liable, the cash price of the goods or services must be more than £100 and less than £30,000.

This protection also covers store cards. If you pay by cash or debit card, you generally aren’t covered, although some Visa debit-card providers will make good the loss.