Carillion, the UK’s second largest construction company went into liquidation on 15th January 2018, after running up huge debts of around £1.5bn. There is no doubt more to emerge on this story, as it seems likely the company will have been in trouble for some time prior to its failure. A joint enquiry by MPs to investigate the events leading up to the liquidation has been launched, but that does not help those now suffering bad debts.

The collapse of Carillion has sent shockwaves through the construction industry, as it means that many of its 30,000 private sub-contractors will not be paid for their hard work. This corporate failure has not only affected large companies but also thousands of smaller subcontractors. In many cases, these smaller subcontractors did not even actually work for Carillion themselves. Instead they were engaged by the larger enterprises that worked directly with Carillion, businesses that will now not receive the funds they need to pay those subcontractors. As a result, further business closures down the chain are likely in the near future.

Whatever the nature of your business, there are measures you can put in place to help minimise the risk of business failure should you lose any of your larger customers.

A strong business plan is always beneficial in building a successful business. It helps identify which work will be the most profitable, and can be compared to actual results to ensure the business is going as expected. Keeping your business plan updated is always a wise move as part of planning your way forward to protecting your business.

Highlighting the resources that you have available will enable you to determine whether your business works better having many small customers rather than one or two major clients. As a general rule, relying on a smaller client base is more risky. A larger client base means that if one customer cannot pay it should not cause too much damage to your company’s finances.

Even the smallest disruption in cash-flow can halt a business’ plans. Both staff and suppliers will be unhappy if they are not paid on time, possibly leading to the loss of vital talent or materials. In the worst case, the business may not be able to pay its fixed operating costs, which is likely to lead to immediate closure. Engaging debt recovery services to chase customers on your behalf can help improve cash-flow when those managing the business do not have the time to do it themselves.

It is also best not to raise only a single large invoice when a major project is finished. As expenses are likely to be incurred over the course of such a project, this leaves the business having to find funds to cover those costs. Instead you should aim to invoice clients regularly for partial amounts agreed in advance, commonly known as stage payments. Though this will involve additional paperwork, it should also ensure a regular in-flow of cash.

Don’t be afraid to discuss payment terms when taking on a new customer. Online credit checks can be taken up to verify whom you are doing business with and whether there are any issues with extending credit to them. You should also consider payment services like direct debits and accepting credit cards. The easier it is for customers to pay you, the more likely it is that you will receive payment promptly.

The construction industry, like many other sectors, can be subject to market forces outside your control. Should you find that your business is having financial difficulties, don’t leave it until it’s too late to contact your bank. They may be able to offer funding options to tide you over.

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