What can construction companies learn from Carillion?
The recently shocking news regarding Carillion will not only affect those people working directly for Carillion but also the vast number of subcontractors who are still owed money for works they have completed.
The forced liquidation means not only will these companies have outstanding invoices they will also have had work agreed for the next 12 even 24 months that is no longer going to happen.
There has to be lessons that can be learnt from this to help companies in the future, with over 27% of construction companies saying late payment is a threat, we have outlined some of the ways you could protect yourself below:
Credit check & monitor all customers
This is not fool proof, but will give you an indication over a period of time if a company is improving or declining financially.
Know your payment terms
Main contractors regularly insist on payment terms of 120 days to suppliers, make sure your collection process is strict and rigorous, so no further delay is incurred.
Subcontractors, make sure you know the date to submit your application for each individual contract & submit in the correct format. If application for payment is not submitted in time, this will delay payment for a month not a couple of days.
Liquidation what is the impact on this
Straight away the company ceases to trade so the only way to get money is from sale of assets. You become an unsecured creditor & may get several pence in the pound in a few years’ time if you are lucky!
The impact of Administration
Companies often go into administration first rather than immediately into Liquidation in situations like Carillion, so work carries on with existing contracts while they are being sold off, therefore increasing value. The appointed administrator is liable for payment from date of appointment to when sold, so make sure you have a written order from the administrator before continuing work.
Look at any Retention of Title claims you can make against goods, materials on site. Then submit to the liquidator/ administer immediately as once the materials are incorporated in the main fabric of the building, you lose your rights.
The construction industry is known for late payments and for long payment terms due to the nature of the payment process. Ensuring that your internal processes are robust can ensure that any contracts you have moving forward are not open to manipulation.
If you need some help to get these processes in place or are looking for someone to take this on board for you. We have the experience and expertise to ensure this growing trend isn’t a worry for you.
