Construction sector writes off almost £2bn in outstanding payments each year
More than 70 per cent of sector firms suffer ‘bad debt’ according to report
Banbury, UK - Every year, construction firms in the UK write off more than £10,000 each when customers do not pay, according to a new report.
Published by business funder Bibby Financial Services (BFS) and industry experts, The Vinden Partnership (TVP), the Planning for Growth report reveals that over 70 per cent of SME construction firms have suffered bad debt over the past three years. The average amount scrapped by these firms during this period was £30,465, equating to £1.9bn each year across the sector.*
Helen Wheeler, Managing Director of Construction Finance at BFS, said: “Bad debt is a serious issue for many construction businesses and represents a huge leakage in terms of sector output. Non-payment can occur due to customer insolvency, payment default or dispute and the issue is severely problematic for smaller firms who have often already footed the bill for labour and material costs.
“This places a massive strain on these businesses, often causing viable firms to fold. The problem is particularly acute for those who do not have sufficient working capital or bad debt protection in place to cover against this situation,” Helen added. “Even if the business isn’t crippled in the long term, this £10,000 could be invested into growing their business or taking on an apprentice.”
Lee Ryan jointly runs a flooring business Phil Ryan Flooring with his father. He was forced to write off £2,700 when his customer stopped trading.
“As a small company, writing off thousands of pounds had a big impact on the business,” he said. “Our cashflow was quite badly affected and it created a lot of uncertainty at the time. As a partnership, we’re quite vulnerable and if we didn’t get paid for some of our jobs, it would potentially wipe us out. Now, have bad debt protection to reduce the risk.”
According to official figures there are 280,000 construction businesses in the UK, employing an estimated 2.9m people.
Peter Vinden, Managing Director of TVP, says payment disputes are a routine part of the construction sector. Peter said: “Disputes and litigation are a common occurrence in the industry, but often smaller firms and subcontractors do not have either the legal expertise or financial resources to pursue action which would ensure they receive the amount owed from customers.
“Furthermore, clauses imposed by larger contractors are becoming increasingly onerous and this is a significant issue for many of the businesses we speak with. There is also increasing evidence of contractors seeking extended credit from the supply chain and the number of adjudication appointments is showing a sharp increase in payment disputes.”
BFS is urging smaller firms to seek expert advice in relation to reviewing contracts, credit checking customers and protecting their businesses using methods such as bad debt protection.
“It’s vital that owners look to protect their businesses against the risk of bad debt. There are expert advisors and specialist construction finance providers who can help”, Helen concluded.
The full report can be downloaded at: http://www.bibbyfinancialservicesblog.com/planning-for-growth .
NOTES TO EDITORS:
* Figure based on 70 per cent of the UK’s 280,000 construction firms (196,000) each losing £30,465 over three years. This £5.97bn equates to £1.9bn per year.
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About Bibby Financial Services
Bibby Financial Services is the UK’s leading independent invoice finance specialist and a trusted provider of cashflow funding solutions to 7,000 businesses, handling annual client turnover of £4.9 billion and advancing in the region of £388 million.
With a network of 17 local offices throughout the UK, Bibby Financial Services has the agility to make informed funding decisions quickly and efficiently.
Bibby Financial Services is a member of the Asset Based Finance Association and supports businesses in both the UK and overseas, utilising expert knowledge from more than 28 years’ experience, helping companies regardless of size across a broad range of industry sectors.
In 2011, 2012 and 2014 the company was awarded a place in The Sunday Times 100 Best Companies to Work For and in 2013 it was awarded the NACFB Best Factor and Invoice Discounter award for the sixth consecutive year and ninth in total.
About Bibby Line Group
Bibby Financial Services is supported by its parent the Bibby Line Group, a business-to-business services group involved in ship owning and operation, shallow water accommodation, offshore oil and gas services, contract logistics, financial services, memorial parks, employment law and health and safety advisory services, specialist plant and equipment hire, and retail.
The company was founded by Liverpool entrepreneur John Bibby in 1807 and has its head office in Duke Street, Liverpool.
About The Vinden Partnership
The Vinden Partnership (“Vinden”) is a multi-disciplinary firm of management consultants. It has a 21 year track record of providing innovative services to the construction, engineering, banking, asset based lending and insurance sectors.
The team is made up of chartered quantity / building surveyors, adjudicators, arbitrators, barristers, forensic planners, engineers and architects, many of whom are dual qualified and from an industry background with 20+ years’ experience.
Vinden provides services through its regional offices and network of client relationships throughout the UK and beyond.