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Huge rise in small firms struggling financially as 'Carillion effect' rocks construction

Research from Prompt Payment Directory shows mental impact as well as financial impact

A survey of 400 owners, MDs and CEOs of small construction businesses who suffer from poor cashflow due to late or outstanding invoice payments, has found that 74 per cent of the construction companies polled have been on the brink of bankruptcy or liquidation, or could be soon, a rise of 30 per cent over last year.

In addition, the research from The Prompt Payment Directory, a payment rating website for businesses, found. 48 per cent of respondents blamed poor cashflow for poor mental health, such as panic attacks, anxiety and depression - a rise of 27 per cent on last year.

The PPD said that the dramatic rises have come despite the Government’s Prompt Payment Code (PPC) and last April’s enforcement of the Government’s new ‘Duty to Report’ scheme that requires large companies to report on payment practices twice a year. 

The survey also found that 62 per cent of owners said late payment issues had also meant that they had not paid themselves for some time, 35 per cent had stopped or delayed bonuses, 15 per cent had had to pay staff late and 17  per cent had reduced their own salary.

If customers continue to pay late, 30 per cent of construction company owners said it will soon affect the progress and growth of their business, while 30 per cent said it had already impacted staff morale, recruitment and retention. A further 38 per cent had struggled to pay business rates and a quarter had struggled to pay mortgage or rental payments on their office.

The PPD also pointed to ther personal cost of the financial situation, with 33 per cent of SME construction company owners saying they had been forced to sell assets such as property, shares and pension plans to make ends meet whilst 16 per cent  said they had cancelled their family holiday as a result.

A ’staggering’ 73 per cent said they were victim to long payment terms beyond the Prompt Payment Code recommended payment terms of 45 days. A third of respondents said they had been on the receiving end of mid contract changes to payment terms, 17 per cent had been asked for retrospective discounting, while 15 per cent had been asked to ‘pay to stay’, or face supplier delisting.

Hugh Gage, managing director of The Prompt Payment Directory, said: “Recent high profile cases such as Carillion have made many more people aware of the cost of late or non-payment and how it can affect smaller construction firms, but in reality this has been going on for years. Construction business owners need to arm themselves against some of the most common late payment issues and fight back against these poor practices as it’s always best to try and avoid them from the outset by using due diligence through credit reference agencies, or services such as The Prompt Payment Directory which rates businesses’ payment behaviour by those that it affects - their suppliers.”

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