Main contractors face “payback time” over late bills

Grant Prior 8 years ago
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Suppliers who were nearly put out of business during the downturn by late paying main contractors could exact their revenge as the market starts to pick-up.

The boss of regional contractor Stepnell said the re-appearance of skills shortages in some trades puts subcontractors in their strongest position for years.

Stepnell managing director Mark Wakeford said: “Subcontractors and key suppliers have been afraid to insist on their larger clients paying them within 30 days for fear of losing future project work. But now the tables are turning.

“The industry’s capacity is only two thirds of what it was five years ago. Those still standing are in demand and in a stronger position to set their own payment terms and choose who they want to work with.”

Wakeford also warned that many main contractors are effectively ‘zombie companies’.

He said: “The worry is over contractors’ ability to bring forward their payment terms to 30 days from 60 or in some cases, more than 90 days.

“A contractor paying suppliers and subcontractors in 60 days and trying to respond to market pressures to pay in 30 days may need to find around seven per cent of its turnover in cash to meet these faster payment terms.

“Even if spread over three years this equates to over two per cent of turnover annually for those three years.”

Wakeford said the biggest risks will be to clients whose main or tier one contractor cannot attract suppliers into the delivery team and to the contractor’s suppliers if it finally runs out of cash.

He warned; “This will only compound problems in trading out of a recession when turnover grows and cash is needed to meet a greater working capital requirement and investment in plant, skills and corporate infrastructure.

“During the recession many large contractors have got away with paying their suppliers late or extending payment terms because they have had the power to do so. That power is now shifting which could be the final kiss of death for zombie firms.”

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