Subcontractors write-off £2.8bn in bad debts every year

Grant Prior 8 months ago
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Subcontractors are writing-off a staggering £2.8bn in bad debts every year as non-payment continues to blight construction.

The figure is contained in a study by Bibby Financial Services specialist and consultant The Vinden Partnership .

The Subcontracting Growth 2018 research, undertaken in the aftermath of the collapse of Carillion, reveal that 60% of subcontractors have suffered from bad debt in the last 12 months, with the average firm writing-off £16,149 each year.

Bibby Specialist Finance Director Kash Ahmad said: “Bad debt is a serious issue for many construction businesses and, across the entire sector, more than £2.8bn is written-off each year, representing a significant economic leakage.

“Bad debt occurs due to insolvency in the supply chain, protracted default or dispute and the issue is particularly challenging for smaller firms that have already footed the bill for raw material and labour costs.

“This places a massive strain on these businesses, sometimes even causing viable firms to fold. For many, bad debt is the hidden cost of doing business.”

Almost a fifth of subcontractors (17%) said the most common reason for not receiving the full amount billed was due to a customer going out of business.

A change in the scope of work part way through a project (8%), queries over the quality of work (6%) and disputes over contracts (6%) were also among the top reasons firms would lose money.

Ahmad added: “The Carillion situation has highlighted three fundamental issues in the sector: endemic late payment, bad debt and complexity of contracts. Each of these issues needs to be tackled by both the public and private sectors.”

Helen Wheeler Managing Director for Construction Finance at Bibby said: “Making full and correct payment in accordance with contracts is a fundamental pillar of the Government’s Construction Supply Chain Payment Charter, but it is clear that this simply isn’t happening.

“Unless something more tangible is done, the growth of tens of thousands of small construction firms will continued to be stifled.”

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