News Article

Sector Analysis

Construction companies must tackle bad debt

By CreditMan Friday, July 20, 2012

Construction companies and their suppliers are facing massive financial pressure due to the current economic climate. According to the Markit/CIPS purchasing managers index #bbcnews the UK construction sector has fallen at the fastest pace for two and a half years in the last month. Indeed problems in the construction sector is being cited as one of the key reasons why the UK fell back into recession at the start of 2012.

Notable construction failures over the past few months include W J Harte, Red Sky Group, The Carvill Group, the plant division of Doyle Blythewood Plant and Steve Hill Construction.

To make matters worse businesses in the construction and manufacturing sector are waiting longer than any other sector to get paid by customers, waiting on average 32.4 days to be paid according to trade credit insurer Atradius.

With more and more construction projects being shelved or “mothballed” due to current financial insecurity, only the fittest will survive and remain profitable. Daniels Silverman are urging businesses in the construction industry everywhere to undertake a full credit review and overhaul of internal credit processes to ensure a successful future and avoid becoming one of the above statistics.

Carole Hughes, managing director, Daniels Silverman, says “We have seen a massive 35% increase in enquiries from businesses in the construction industry and from associated trades such as architects plumbing plastering and joinery businesses seeking to recover unpaid debts and overdue accounts. Many problems could have been averted by companies reviewing and overhauling their internal credit control procedures. By making simple changes such as how and when they grant credit and reviewing how they chase unpaid invoices, a company can boost cash-flow and drastically reduce it’s bad debt provision. A specialist knowledge of how the construction industry works including the collection of authorised extras overspends and unpaid retentions is essential to get the cash flowing back into your business”

Key areas to review are:-
• How credit limits are set and monitored
• Internal dunning cycles and collection strategies
• Terms and conditions of trading, and
• The early use of third party debt collection agencies to resolve problem accounts
• Choosing a collection agency experienced in dealing with construction disputes and the ability to negotiate and arbitrate and make full use of the provisions of the MOJ’s Pre-Action Protocol for Construction and Engineering Disputes.

The Government’s current attempts to help construction companies boost trading and profitability do not go far enough, and business owners need to ensure they do everything they can to help themselves. For a free copy of Daniels Silverman’s Top Tips for Credit Control in the Construction Sector please contact Amanda Childs on 0800 694 2271 or email.