Threat Of Insolvency Spikes For UK Construction Industry

Following the collapse of the U.K.’s largest contractor, construction conglomerate Carillion, new data shows a major spike in the number of construction companies facing financial struggles.

Reports in Racplus on Wednesday (May 9) said a survey by The Prompt Payment Directory, a B2B payments practice racing service, found a 30 percent increase year over year in the number of construction businesses in the country that said they have either been on the brink of bankruptcy or liquidation, or could be soon.

Nearly three-quarters of the 400 small construction businesses surveyed are facing severe financial challenges. Researchers also found evidence of mental distress as a result of cash flow challenges: Forty-eight percent of survey respondents said poor mental health is linked to poor cash flow, a 27 percent increase from last year.

The Prompt Payment Directory warned that these spikes occurred even as government initiatives aim to address late payments; the U.K. introduced the Prompt Payment Code as well as the Duty to Report scheme, which requires large companies to provide details on how long they take to pay their suppliers.

The Prompt Payment Code recommends payments be made to suppliers within 45 days; 73 percent of construction firms surveyed, however, said they have been paid past that timeframe. One-third noted they have been forced to deal with sudden changes in payment terms.

According to The Prompt Payment Directory Managing Director Hugh Gage, recent high-profile scenarios like the collapse of Carillion and its knock-on impact on supplier cash flow has raised awareness of the issue of late payments in the industry.

“But in reality,” he said in a statement, “this has been going on for years. Construction business owners need to arm themselves against some of the most common late payment issues and fight back against these poor practices as it’s always best to try and avoid them from the outset by using due diligence through credit reference agencies or services such as The Prompt Payment Directory, which rates businesses’ payments behavior by those that it affects — their suppliers.”

Researchers found late payments are also linked to small construction business owners failing to pay themselves. More than a third said late payments forced them to delay or stop bonus payouts, while late payroll and salary cuts were also cited as direct effects of late payments.