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Payment disparities show signs of turning a corner

Chris Robertson

It feels like we’ve been talking about Carillion continuously since the construction giant entered liquidation in January – and with good reason.

The collapse exposed major cracks in the performance of the sector and led to serious questions about its resilience. 

Greater scrutiny is being placed on other outsourcing companies and it seems that many are looking to get their ducks in a row to avoid any potential pitfalls. Capita went to shareholders to ask for £681m to pay down debts, while Interserve extended its overdraft facility in March.

However, construction companies – big and small – are continuing to feel the pressure. 

In a report from the National Audit Office (NAO) last week, we were told the cost to the taxpayer of Carillion’s collapse will be £148m. And that doesn’t include the wider costs to the economy, employees, customers and the supply chain.

Subcontractors that were owed more than £2bn after the contractor’s failure are likely to receive just £164m, according to the report. And subcontractors are clearly feeling the squeeze: 308 more companies entered administration in May, including Bristol-based Ikon Construction and Scottish firm Crummock

Right direction

However, for the first time since the end of 2017, the time it took companies to pay construction firms and the time it took construction firms to pay suppliers were on a par at 14 days in May, based on days beyond agreed invoice terms (DBT).

This is in contrast to previous months, when there was significant gap that left construction firms waiting far longer to be paid. While 14 days beyond terms is still too late, at least the trajectory is moving in the right direction. 

“The good news this month is that the sector seems to be finding some consistency, despite ongoing uncertainty for many”

Unfortunately, there are major challenges facing some areas of the UK.

Greater London is reporting the best performance, with payments both to and from the construction sector averaging nine days late. At the other end of the scale, it is taking Northern Irish and South-west construction companies around four times longer to receive payments than to make them to suppliers.

These are staggering disparities which make it very difficult for construction companies in these regions to maintain a healthy cashflow. 

Steady cashflow

The good news is that the sector seems to be finding some consistency, despite ongoing uncertainty for many.

The percentage of invoices paid late across the sector in May remained in line with April’s numbers, with 88.3 per cent of payments to construction firms arriving on time, slightly below the 90.3 per cent paid on time from construction firms to their suppliers.

Meanwhile, the NAO’s report found that two-thirds of Carillion’s UK workforce has found new jobs, which is not only good for the individuals but also suggests that there is enough live activity in the sector to sustain healthy levels of employment.

We need to hope for more of the same in June.

Chris Robertson is UK CEO at Creditsafe

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