A survey by construction finance specialist Bibby has revealed that cash reserves in the specialist sector are all but used up.
It warns the resumption of major construction projects will pose a significant threat to the financial viability of many of the industry’s subcontractors.
Research by the firm found 22% of SMEs in construction are facing a delay in receiving payment and are running out of working capital.
They are also feeling the squeeze from a rise in bad debt with just over a third having to write off an average of £43,000 since the end of January.
This is compared to the national average of just 25% of SMEs writing off £35,000.
Jim Davis, managing director for Construction Finance at Bibby expects payment delays to get substantially worse for firms as they work out how to manage contracts written before COVID-19 changed the way sites are run.
“The next 4-6-weeks will be the most challenging time for subcontractors,” he said.
“Many businesses in the sector have already used up their working capital so, as contractors start to call their subcontractors back to work, the funds to pay for salaries and materials are simply not there.
“The temptation will be to go after as much work as possible as opportunities begin to open up but subcontractors must plan prudently. If the return to work isn’t managed carefully and gradually, we could see a wave of business failures.”
Davis added that firms were entering unchartered territory. New health and safety policies will need to be agreed and lines of responsibility for PPE drawn.
Social distancing rules will significantly reduce productivity, making many contract timelines and deliverables unachievable.
He said: “All of these issues will add to arguments and delays when it comes to paying invoices, delays that no subcontractor can afford right now.
“I cannot stress enough how important communication with main contractors and lenders is going to be as we enter this new stage.”