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Carillion Collapse Impacts on Small Construction Firms

Small construction companies are increasingly being impacted by payment delays, and this impact has been further exacerbated by the collapse of Carillion. 

This is the conclusion of new research by business finance website Funding Options, which found that suppliers now have to wait over 42 days on average for invoices to be paid, up from just over 40 days on average five years ago. Construction businesses are extending delays in paying suppliers, which can threaten the whole supply chain’s financial stability, putting jobs at risk and threatening the Government’s ambitious housebuilding targets.

It highlights that construction supply chains often include many small and medium sized businesses with tight profit margins, which can find it difficult to deal with payment delays.

In addition, many large businesses in the construction industry are able to stipulate long repayment terms to suppliers. Many smaller suppliers to Carillion, for example, had to agree to 120 days for payment. Following Carillion’s collapse in January, these businesses received almost none of the payment they were owed. Some estimate they will receive at most a penny in the pound.

These payment delays are contributing to a high level of insolvencies in the construction sector, with 2,633 construction businesses going insolvent in 2016/17, rising 8% from 2,447 in 2015/16.

“A single late payment can be an issue even for larger and more successful firms, and worsening delays could create more insolvencies,” commented Conrad Ford, CEO of Funding Options. “Carillion’s collapse sent shockwaves through the industry, affecting smaller suppliers who will now never get paid what they are owed. Construction businesses have high overheads and labour costs, and many cannot afford to wait for payment for lengthy periods of time.”

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