The collapse of Carillion early in 2018 highlights weaknesses in the UK construction industry.
As Carillion and some of its associated companies liquidate, this will have a significant impact on the construction sector.
“Those businesses operating in the same supply chain will be especially at risk,” observes Paul Daine of Premium Collections.
Challenging Conditions
“Recovery rates on insolvency in the construction industry are low,” Paul points out. “This is despite firms attempting to minimise the risk and improve cash flow by using supply chain finance and project bank accounts.“
In construction, turning a profit is a challenge while lenders remain cautious.
Most of a contractor’s value lies in its receivables, which means if it becomes insolvent before the end of project, the risk is that the value of any work in progress, and certified sums, will dramatically erode”
Where a major contractor, such as Carillion, collapses, it is inevitable that those construction firms who rely on it as subcontractors will feel the effects. Therefore, firms in the supply chain must work to protect debts and cash flow.
Acting Fast
“It is important that firms in the supply chain act quickly in the event of a main contractor going into liquidation,” Paul emphasises.
“Your reaction to events must be fast,” Paul continues. “The quicker you respond, the better your chances of lessening the impact on your own business.”
Firms in the supply chain should first contact the insolvency practitioner and see what the plans are for the main contractor.
There will be differences in degrees of impact, depending on whether the main business is going to continue trading in preparation for sale to a buyer; or if it will cease trading altogether.
“Regardless, if you’re a subcontractor in the supply chain, you must plan for any eventuality. You’re facing a loss of turnover, so how you organise yourself should help you cope better”
“Survival is the priority,” advises Paul. “This means exploring all the options and, to do so, getting the right professional advice first.”
When a contractor becomes insolvent mid-project, those who depend on them face uncertainty, joining the long list of unsecured creditors.
According to the credit reporting agency Experian, over 4.5 billion pounds’ worth of unpaid invoices in the UK are uncollectable due to insolvency, turning non-payers into never-payers.
“You can’t always see it coming, but you can organise your business so that you routinely chase debt and recover your funds as soon as possible”
“You must take advantage of all the protections available to you,” concludes Paul. “This maximises your chances of recovering your money before a client is declared insolvent.”
To protect your business, by strengthening your credit control and debt collection processes, please call Premium Collections on 0161 962 4695.
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