“The knock-on effect of Carillion’s failure is potentially massive, even for subcontractors who didn’t work for them directly, whether that be in South Yorkshire or across the country”, warns Tim Shore, managing director of Sheffield-based construction finance and debt recovery specialists, CRS Group.
Whilst government focuses on protecting the public sector, where does that leave the rest of the construction industry and, in particular, smaller subcontractors?
Construction businesses are urged to focus on cash-flow, ensuring that they are paid promptly. Subcontractors who might be breathing a sigh of relief that they didn’t work directly for Carillion, are warned that they need to be very careful that they aren’t indirectly affected through those who are. There are a number of other large construction companies that have entered into joint ventures with Carillion. Whilst they all claim to be sound and expect to survive; these joint venture businesses will have to bear some of the costs that Carillion would have carried if it had survived. Just one of Carillion’s joint venture contracts will cost Carillion’s partners around £80 million. A total of well over £1 billion will be sucked out of the construction industry. The result will be pressure on cash-flow across the sector, so subcontractors shouldn’t be surprised if they get squeezed. Longer payment terms and a squeeze on margins will be felt by subcontractors across many contracts, not just the Carillion contracts.
So, what can subcontractors do to protect themselves? Tim Shore advises subcontractors to keep a very close eye on cash-flow:
- Review your contracts and debtors. Where you can, apply pressure to get paid earlier or chase overdue accounts promptly.
- Don’t be afraid to consult specialist debt recovery consultants. They usually work on a ‘no win, no fee’ basis, so there is no cost if the debt isn’t paid but a significant boost to cashflow if the debt is repaid quickly.
- Chase retentions. There can be a hidden pot of cash sat in retentions that are all too often written off.
- Don’t be bullied into parking a disputed debt. Specialist debt recovery consultants can help negotiate settlements, often without having to go to court, again on a ‘no win, no fee’ basis.
- Think about selling a debt. If you have debts that you haven’t got the funds to pursue and have all but written off, then selling them can generate cash.
- Raise cash against your invoices. There are finance businesses such as Sheffield-based Cirrus 4Syte who can advance cash against single contracts which can release vital cash early.
- Don’t stick your head in the sand. If you’ve explored these options, there are still other solutions such as restructuring your business to ensure that you survive, but you must take advice at an early stage to get the best outcome.