News - Construction News

Carillion worsens SME payment crisis

The fall of construction giant Carillion has exacerbated the payment crisis for small construction firms, according to research from Funding Options, the online business finance supermarket.

Late payments are the subject of intense scrutiny at the moment, with Parliament having introduced a bill this month to accelerate payments made to SMEs, and the liquidation of Carillion has made matters worse this year. Some SMEs are now waiting over 42 days to get invoices paid, up from 40 days on average five years ago.

With construction supply chains often including many small and medium sized businesses with tight profit margins and less ability to deal with payment problems, delays in paying suppliers can threaten the whole supply chain’s financial stability, putting jobs at risk and threatening the Government’s ambitious housebuilding targets.

Part of the problem is that 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, with some estimating they will receive at most a penny in the pound.

In June of this year, a new bill has been introduced in Parliament, which aims to address late payments for SMEs through introduction of a deposit scheme.

Conrad Ford, CEO of Funding Options, says: “A single late payment can be an issue even for larger and more successful firms, and worsening delays could create more insolvencies.”

“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.”

“It is crucial that construction companies understand all the options available to them for the funding they require to minimise the impact of late payments.”

“There is a variety of alternative lending available to small businesses seeking funding, such as invoice finance, asset finance, crowdfunding and peer-to-peer lending. This abundance of choice can mean it can be difficult to know which sort of finance is the best fit for a particular need, or who is out there to provide it.”

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