Supply Chain Failure After Carillion Collapse

5th February 2018.

The collapse of Carillion is likely to trigger a rise in the number of construction companies going bust as subcontractors in its supply chain miss out on payment, a leading accountancy firm has warned.

The supply chain is already fragile, particularly within a sector where profit margins are typically low. The recent collapse of construction giant, Carillion, has made the risk of insolvency very likely for large numbers of construction firms. Late payment is now viewed as procedure, with some industry bodies blaming Carillion for bullying suppliers into allowing extended payment terms. Here at the Credit Protection Association we have dealt with the fallout of Carillion. Many of our members are sub-contractors who are struggling with the weight of late payment, and others are struggling with customers who are themselves struggling with late payers. It’s all a big mess. We encourage business owners to always know exactly who you are doing business with. Make them fill out a credit application form, and a credit report, and monitor them consistently using our credit reporting system at CPA. We can avoid that chain snapping, as long we keep business moving. Come to CPA for help with your cash flow and advice on how to ensure you don’t become the next Carillion.

Lee Causer, a partner for accountancy firm, Moore Stevens, has warned that the Carillion collapse could lead to a rise in company insolvencies.

According to new figures from the Insolvency Service, the numbers of insolvencies in the construction industry rose by 8 percent, up to 2,633 last year.

Carillion’s former bosses are already under scrutiny over their role in the collapse. Richard Howson- who quit after the company’s first profit warning in July-, and chairman Philip Green are among those facing questions over their management of the business.

Furthermore, the Federation of Small Businesses (FSB) has accused the construction giant of abusing its dominant position to force suppliers to accept late payment. This will no doubt lead to a further inquiry into how small businesses are treated by the larger companies of the sector.

The average amount of time that construction companies have had to wait for payment has risen from 52 fives years ago, to 69 now, according to separate research by Funding Options.

In the aftermath of Carillion it has been revealed that suppliers have been forced to wait as much as 120 days for bills to be settled.

The collapse of Carillion has been felt across the whole business community. Even if your customers are paying on time and you’re paying on time, if someone down the line is not, then everyone is affected. It is the inevitable reality of the sector’s supply chain.

The staff at the Credit Protection Association, therefore, encourage all business owners to keep an eye on your customer. Ensure they fill out a credit application form with all their details, ensure they complete CPA’s credit report, and ensure that you use this system to monitor their every move. If it looks like their financial standing is wobbling, then you tighten up your credit terms or get out altogether. If you do find yourself suffering from a late payer or a non-payer as a result of Carillion, please get in touch with CPA to free up your cash flow! Don’t let your business become another insolvency statistic!

The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!

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