The construction sector has had a difficult past year, with Carillion’s collapse only strengthening late payment’s resolve. The supply chain was hit particularly hard by the demise of the construction giant, and any government initiatives aimed at easing the discomfort, have fallen flat. Other obstacles in the form of Brexit uncertainty and the ‘Beast from the East’ snowstorm back in March, further threatened the sector’s success.
Bibby Financial Services recently conducted research entitled ‘Subcontracting Growth 2018’, which revealed 60 per cent of subcontractors in the UK had suffered from bad debt in the last 12 months. The research was undertaken in Carillion’s aftermath and concluded that the average firm was writing-off £16,149 each year.
At the Credit Protection Association, many of our Members have been victims of late payment. Late payment torment has not been restricted to construction, and Members from retail to service sectors have also approached us for aid. The collaboration between our debt recovery and credit management services has helped ease their financial turmoil, prompting us to launch a new department within our company dedicated to the issue.
Specialist Finance Director at Bibbys, Kash Ahmad, says bad debt is a serious issue for many construction businesses and, across the entire sector: “More than £2.8 billion is written-off each year representing a significant economic leakage”.
“Bad debt occurs due to insolvency in the supply chain, protracted default or dispute and the issue is particularly challenging for smaller firms that have already footed the bill for raw material and labour costs. This places a massive strain on these businesses, sometimes even causing viable firms to fold. For many, bad debt is the hidden cost of doing business.”
Almost a fifth of subcontractors said the most common reason for not receiving the full amount billed was due to a customer going out of business. A change in the scope of work part way through a project, queries over the quality of work, and disputes over contracts were also among the top reasons firms lose money.
More than two-fifths of businesses said that construction contracts are difficult to understand, with less than one in ten firms seeking expert advice.