2,633 UK construction companies fell into insolvency during 2016/17, rising 8% in one year from 2,447 in 2015/16, according to data from Moore Stephens.
The new research comes on the back of the liquidation of UK’s second largest construction company, Carillion, risking the future of many other businesses in its supply chain.
Many subcontractors are owed money by Carillion, and now just a fraction of what is owed to them will be paid. Carillion held just £29m in cash when it entered liquidation, with debts of almost £1.3bn to its banks alone.
Carillion’s liquidation is symptomatic of the financial difficulties faced by many construction companies. Tight profit margins and high overheads in terms of material and labour costs are being worsened by the long waits for payment, that are now epidemic in the sector.
Construction companies saw an average wait time of 69 days for payment in the construction sector as a whole, up from 52 days five years earlier. In recent years, Carillion came in for sharp criticism over the extension of its standard payment terms to 120 days.
The failure of some major construction groups to pay invoices in good time risks damaging subcontractors’ growth, increases strain on their cashflow, and can threaten their solvency.
Construction consistently has the highest number of insolvencies of all industries in the UK. This comes as construction companies are likely to be hit by substantial increases in import costs, as a result of the fall in sterling following Brexit, as well as needing to plug a skills gap often filled by EU workers.
Lee Causer, Restructuring & Insolvency Partner, said, “The fall of Carillion could be the trigger for even more construction companies going under.
“Carillion has already left a huge number of subcontractors out of pocket, when they are already facing enormous financial pressures.
“Profit margins in construction are already very tight, and late payment of subcontractors is now standard procedure for far too many in the sector.”
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