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Subcontractors lose an annual average of £16,000 each as a result of bad debts and collectively they are forced to write off £2.8bn each year, according to new figures.
Research by Bibby Financial Services (BFS) found that three fifths of subcontractors have written off sums over the past year.
The findings of the Subcontracting Growth 2018 survey, which was undertaken following the collapse of Carillion, found that the average firm waves goodbye to £16,149 worth of bad debt each year.
Almost a fifth of subcontractors (17%) said the most common reason for not receiving the full amount billed was due to a customer going out of business. A change in the scope of work part way through a project (8%), queries over the quality of work (6%) and disputes over contracts (6%) were also among the top reasons firms would lose money.
Specialist finance director at BFS, Kash Ahmad, said: “Bad debt is a serious issue for many construction businesses and, across the entire sector, more than £2.8bn is written-off each year, representing a significant economic leakage.
“Bad debt occurs due to insolvency in the supply chain, protracted default or dispute and the issue is particularly challenging for smaller firms that have already footed the bill for raw material and labour costs. This places a massive strain on these businesses, sometimes even causing viable firms to fold. For many, bad debt is the hidden cost of doing business.”
“The Carillion situation has highlighted three fundamental issues in the sector: endemic late payment, bad debt and complexity of contracts. Each of these issues needs to be tackled by both the public and private sectors.”
Helen Wheeler, managing director for Construction Finance at BFS, added: “Making full and correct payment in accordance with contracts is a fundamental pillar of the Government’s Construction Supply Chain Payment Charter, but it is clear that this simply isn’t happening. Unless something more tangible is done, the growth of tens of thousands of small construction firms will continue to be stifled.”
