Customer late payment continues to hamper the growth of small subcontractors working in the UK construction sector, according to new research by Bibby Financial Services and the Vinden Partnership.
Bibby Financial Services research entitled ‘Subcontracting Growth 2018’, revealed that 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.
Specialist Finance Director at Bibby Financial Services, Kash Ahmad, said “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 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 one in ten firms seeking expert advice.
Ahmad continued “The Carillion situation has highlighted three fundamental issues in the sector endemic late payment, bad debt and the complexity of contracts. Each of these issues needs to be tackled by both the public and private sectors, However, there are also measures that small businesses can take in order to protect themselves against such issues. Such measures can include conducting thorough debtor reviews, seeking advice on contract negotiation and considering debt protection.”