• Construction Sector Protection Against Insolvencies

    Construction sector companies need to protect against customer insolvencies and cash flow issues as insolvencies rise.

    Construction sector companies are urged to think about protecting their cash flow as recent news reports suggest that insolvencies in the sector have increased substantially.

    A recent report in CityAM (10th of February 2020), states that whilst the total number of insolvencies in the UK has risen by just under 5%, the situation within the building and construction sector, is that there has been an almost 18% hike in the number of businesses entering Administration (a form of insolvency).

    Construction Sector Protection Against Insolvencies

    This suggests that the construction and building sector is being hit hard by business failures, and these will be having a significant impact on the cash flow of companies within the sector. Only last year we reported on potential help for sub-contractors that were hit by the collapse of Carillion. However, financial failure can affect companies both large and small.

    Even if a customer manages to avoid entering into any type of insolvency, late payment due to cash flow issues can still put a significant pressure on the cash flow of the business.

    Construction Finance & Bad Debt Protection

    There are a number of services available that can help with these issues. Firstly, bad debt protection, which is added to a construction finance facility, gives some peace of mind as it protects against your customers entering insolvency.

    If a customer becomes insolvent, and is unable to pay you, providing you have traded within a preset limit, that is set by the finance company, your invoices will be paid by the finance house. This means that you do not need to worry about customers becoming insolvent.

    The level of protection varies between providers, and you can receive similar protection from credit insurance policies, but this is one way of protecting your cash flow against the impact of a bad debt.

    The other issue affecting the sector is that of late payments. I've written previously about how late payments are affecting UK businesses generally, and again there are services available that can help improve your situation.

    Whilst not all funders will provide finance to the construction sector, there are some specialist lenders that are able to accommodate this. Even in situations where you are invoicing in stages, for parts of a project, you can receive funding against your invoices, or applications for payment which are widely used instead of credit invoices.

    The funding is typically 70% of the value of the transaction, with the balance paid when the customer pays. Whilst this means that you still have to wait for the balance of the payment from your customer, it also means that you are receiving the bulk of the value of the transaction upfront, as soon as the work is completed. This means that you can use that cash to pay suppliers, staff and to meet other overheads.

    Introduce Slow Payers

    If your customer is taking a long time to pay, you could introduce your slow payers to this type of transaction finance, in order to improve their cash flow - call us on 03330 113622 or complete a contact request.

    Cash Flow Help

    If you are experiencing cash flow problems, perhaps if you had a VAT bill to pay or other HMRC arrears such as PAYE or National Insurance, this type of funding can be used to release cash to pay off those liabilities. You don't need to have a perfect credit score, many funders are able to base their decision on the strength of your debtor book rather than your own finances.

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