Small Suppliers Exploited by Carillion to Conceal Debts

22nd May 2018.

Carillion leant on small suppliers to delay paying its bills and sought to conceal the true scale of its debts, an investigation by MPs has found.

Carillion has become a dirty word for suppliers. The collapse of the construction giant shone a light on the maltreatment and intimidation exercised over small suppliers. Some suppliers were waiting up to 120 days for payment, and many of those were left in the lurch when the company announced its failure back in January. The government and financial services alike have since urged businesses to pay suppliers promptly and to maintain an effective credit control procedure.

It is important that business owners scrutinise their financials carefully, ensuring there are no late payers that could lead to trouble further down the line. New claims from the credit rating agency, Moody’s, have revealed that the construction company misclassified £498 million of liabilities that should have been accounted for as bank debt. As its financial got more stretched, and they involved Santander and its Early Payment Facility (EPF), Carillion became more desperate to disguise its vulnerable position.

At the Credit Protection Association, we urge our members to examine their financial paperwork. Whether they are in the red or the green, it is important to prepare for every eventuality. Many of our members have suffered from late payers, and have utilised our credit checks and status reports to keep their business tightly protected.

The construction giant “displayed utter contempt for its suppliers”, according to Frank Field, the chairman of the joint select committee inquiry into its collapse.

The company eventually collapsed in January, leaving millions of pounds in debt in their wake.

Mr Field said: “The company used its suppliers as a line of credit to shore up its fragile balance sheet, then in another of its accounting tricks ‘reclassified’ this borrowing to hide the true extent of its massive debt. This knocks down for good the stance of the Carillion board that whinging and blaming others can be any defence.”

The Sunday Telegraph revealed at the weekend that the inquiry is expected to call for a radical overhaul of the Pensions Regulator, which failed to force Carillion to address its pension deficit prior to its collapse.

When anything goes wrong in business, and in life, it sometimes seems easier to squeeze your eyes shut and pretend nothing has changed. This is essentially what Carillion did, hiding behind their small suppliers to conceal the mountains of debt they had created. This was not only unhealthy for Carillion but was a tactic that hurt businesses all the way down the supply chain. It is a business owner’s responsibility to scrutinise their financial health, ensuring that all residential debt is purged and none of their vulnerable suppliers are at risk.

This is when financial services are essential. Debt collection, debt recovery and credit management companies are important tools to battling residual debt, with their collection teams chasing down late payers and taking steps to protect financial futures for all involved.

At the Credit Protection Association, we boast the effective collaboration between debt recovery and credit management. While our collection team recovers debt and improves credit ratings, our credit checks and company directories also keep debt from building up further down the road.

We fight to the tooth for our members, particularly those who have encountered late payers such as Carillion. We recently created a new department within our company dedicated to getting our members rightly compensated in accordance with the Late Payment of Commercial Debts (Interest) Act 1998, unlocking hidden cash and potential in our members and their prospects.

The moral of the story is businesses of all sizes should organise their financial paperwork impeccably. Whether you are a giant like Carillion or a small supplier, you should scrutinise the financial status of your own business, as well as all those you do business with. Talk to CPA for advise and assistance.