Subcontractors write-off £2bn a year as bad debt

Aaron Morby 9 years ago
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An estimated £2bn is being written off as bad debt each year by the industry’s army of smaller building and specialist contractors.

The staggering estimate comes from a survey of small and medium-sized building firms and specialist subcontractors employing up to 250 staff.

Rather than payment easing with improving workloads there is evidence that getting paid on time or by the full amount is becoming more difficult.

Seventy per cent of firms quizzed said they write off an average of more than £10,000 each year, according to the joint survey by Bibby Financial Services and the Vinden Partnership .

Almost 60% of firms said they do not always receive the amount they have invoiced for but they are forced to accept lower settlements because they cannot afford or wait for dispute resolution or court rulings.

The majority of the 200 firms replying employed between 10 and 50 people and turned over on average £1.8m. Across the industry around 280,000 firms are classified as SMEs.

Helen Wheeler, managing director of construction finance at Bibby Financial Services said: “Subcontractors often work on contracts where completion dates are one, two or even three years down the line and regularly they won’t get paid until the entire project is completed.

“But even then payment isn’t necessarily guaranteed. Many of the businesses we speak to have suffered bad debt, which have significantly hindered their ability to pay workers and suppliers.

“In many instances these bad debts have forced viable businesses to close.”

Peter Vinden of Vinden Partnership said: “Clauses imposed by larger contractors are becoming increasingly onerous and this is a significant issue for many of the businesses we speak with.

“There is also increasing evidence of contractors seeking extended credit from the supply chain and the number of adjudication appointments is showing a sharp increase in payment disputes.”

Most of those surveyed also felt the Government’s Prompt Payment Code and Construction Supply Chain Payment Charter had failed to have any impact on payment culture.

Wheeler added that a practical plan to address the payment practices of larger firms was needed to ensure that smaller firms can continue to take on work, pay wages and invest in their futures.

She said that the Government needed to do more to engage with these small firms to fully understand the issues faced, enabling an informed, rational and long-term solution to be reached.

“Without this input, measures will be seen as little more than token attempts to appease SMEs, as many view the Prompt Payment Code and Construction Supply Chain Payment Charter.”

“While it’s evident that many of the country’s small construction businesses are planning for growth – and seeing some success – the extent to which the current environment supports and facilitates this ambition remains to be seen in 2015.”

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