This is particularly bad news for roofers, plumbers and other subcontractors (‘subbies’). Why? Because in a competitive market, lead contractors sometimes take advantage of their vulnerabilities and avoid paying them.

In an attempt to increase profits, they often put forward lean budgets when tendering for work. For example: a large construction company may offer a bid of £900k to expand a local authority secondary school, knowing the job will cost £1m.

Once they get the contract, cost-effective roofing, plumbing, electrical and gas subbies are called in to reduce the expenditures to £800k, thus creating £100k in profit.

Some lead contractors have no intention of settling invoices. They find fictitious faults and reasons to withhold payment and can generate additional profits by repeating this process with multiple subcontractors who effectively act as their de facto bankers.

To be fair, this practise is not endemic, but an established subbie will have found themselves in this situation on at least one occasion throughout their career.

The funny thing is; we all know that you can have a solid, 30-year relationship with your bank, but if you were to ask them for an unsecured loan of £30k, they would say ‘no,’ and probably want a mortgage on your assets for collateral.

Yet, every day, traders up and down the country leave themselves completely exposed by giving away their labour and materials in return for a promise of payment in 30 to 60 days.

This is generally how debt is created, and the reason liquidators and administrators have such little regard for unsecured creditors, who they consider ignorant.

How to deal with clients who won’t pay

What can subbies and tradesmen do to ensure they are paid promptly for work completed and recover unpaid debts?

Firstly; they must tidy up their paperwork and make sure invoices clearly state that:

1) All queries must be raised within 14 days of receipt of an invoice.
2) All undisputed invoices overdue by 14 days may be subject to insolvency proceedings.

A subbie who has completed all their work in accordance with the contract and issued an invoice, which is undisputed and overdue, may consider issuing the creditor with a winding up petition.

Although winding up petitions should not be used as debt recovery instruments, they are a viable option, especially if a lead contractor has exposed you to unnecessary losses and used their credit terms as an interest-free, unsecured funding facility.

Once a winding up petition has been served, the creditor will act swiftly to resolve the problem; get the petition withdrawn; and avoid having their bank accounts frozen.

Call today on 020 7504 1300 or click here: https://companydebtrecovery.co.uk/our-services/issue-creditors-winding-up-petition/  for confidential and free advice on how to present your debtor with a winding up petition.

Image credits:
http://watchdog.org/59330/nv-schools-got-470m-for-construction-may-get-more/

The post How should builders and tradesmen collect overdue debts? first appeared on Company Debt Recovery.

This figure which is up 8% from last year and a huge 36% from 2011 is considered conservative as it was taken from only 180,000 SME’s across the country who have submitted detailed annual accounts.

As the British economy recovers it seems that SMEs are the ones who are feeling it in the pocket. The average payment date of invoices is now 72 days where as in 2009, during the peak of the recession, the average time was 61 days.

Theories abound that whilst the economy has become more stable small companies are happy to extend payment terms and willing to wait for payment.  This contrasts  with the recession years when they were more likely to consult recovery experts or take legal action to recover outstanding payments in case the debtor went into formal insolvency proceedings.

The ABFA believes that businesses should not view the debts as a hindrance on their cash flow but should be used to unlock funding from banks or factoring companies.

“The scale of unpaid invoices to Britain’s SME’s has become enormous but there is no reason for it to become a barrier to investment and growth.  Businesses need to recognise that their unpaid invoices are an asset.  Often they are the most valuable asset for an SME and they can be the key to unlocking critical and affordable funding.”  Said Jeff Longhurst, Chief executive of the ABFA.

Peter Murray, Director of Insolvency & Law, believes “SMEs who supply their customers should not have to plug the funding gap by extending their credit facilities beyond usual terms.  It is the role of lenders to sufficiently fund their customers and not SMEs.”

“Regrettably, this is what happens because SMEs are more entrepreneurial and take huge risk to grow their businesses.  They have become the bank of first choice for their customers by extending credit terms because, in effect it’s an unsecured interest free loan facility offered by SME Bank PLC “

Construction & Manufacturing most affected by unpaid invoices

As reported by Insolvency & law before, the sector which suffers the most and has the highest value in unpaid invoices is construction and manufacturing.

Overdue invoices stands at £7bn currently which is just over 16% of the sector’s annual turnover.  Other research shows in the construction sector, subcontractors wait an average of 107 days for payment of invoices.

This has caused serious problems for subcontractors who receive late payment from contractor companies.  Affected subcontractors would then struggle to continue with their contractual obligations without the necessary flow of cash to meet labour and materials costs.  It is at this point that subcontractors face the prospect of becoming insolvent at the expense of the contractors.  This would have been caused by the involuntary funding arrangement extracted by the contractor from the subcontractor though late payment of invoice.  In others words subcontractors forcibly funding their contractors at great risk to themselves.

Peter Murray, who has worked with hundreds of construction SME’s, in the management of debt recovery and insolvency, spoke on the difficulties SMEs experience having to constantly provide involuntary extended credit terms to their contractors.  Murray continues “Each week we receive winding-up petition instructions from subcontractors.  A winding-up Petition will force a defaulting contractor to demonstrate it is not insolvent and this is best achieved with a payment of the petitioned debt to its subcontractor or face the prospect of being wound-up by the court.”

If you are a construction SME or contractor and face difficulties recovering money owed to you from a debtor, contact Insolvency & Law for free advice on 0207 504 1300

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www.fionarobertsongraphics.co.uk

http://www.bluehub.co.uk/

The post Construction sector suffers the most as UK SME’s are owed £67bn in unpaid invoices. first appeared on Company Debt Recovery.

The government wishes to help stimulate cash flow in smaller business and encourage them to thrive and grow. It is estimated that at any one time more than £26bn is owed to small businesses from larger firms. Anna Soulby believes that this severely limits business growth and ties up the company’s cash flow. It also potentially can lead to more expenditure, such as legal costs, in order to recover money which is owed.

The initiative to come to this decision has been spearheaded by the Federation of Small Businesses, who in 2014 carried out a survey among their 200,000 members and found that more than 51% had experienced late payment problems in the past 12 months.

Peter Murray from the firm Insolvency & Law, which assists small businesses recover money from large firms had the following to say on why small businesses extend payment terms with larger firms and the dangers of doing so… “Smaller businesses are keen to grow their turnover and larger customers provide that opportunity. However, due to competitive forces smaller firms enter into extending credit terms to larger customers that are usually unfavourable to the supplier. Also, larger customers exert what they believe is their divine right to take twice as long to pay their smaller suppliers. In essence it is the smaller suppliers that are fuelling the growth of larger companies by involuntarily bank rolling them with 90 and 120 days credit terms, sometimes even longer.”

Ms Soulby believes that this new role should create an even playing field between big firms and smaller suppliers. “The small business commissioner will tackle the imbalance of bargaining power between small suppliers and large customers, and encourage them to get round the table and sort out disputes at a fraction of the cost of going to court.” She stated.

“It will also provide advice, investigate complaints and see where further action is needed to clamp down on unfair practices,”

The Small Business Commissioner will have the authority to reinforce existing payment agreements between suppliers and
if necessary publicly name and shame the transgressors.

Unfortunately the new commissioner would not have any legal authority to force the larger firms to pay out to their creditors, which has been viewed with skepticism by some members of the Federation of Small Businesses, including Liesl Smith who is the Head of Communications:
“The new role must have influence and credibility. It also needs to be resourced properly otherwise the role will lose integrity among the business community.” She said when speaking to the BBC earlier this month.

Peter Murray believes that it could be a case of all bark and no bite for the new commissioner “It is difficult to comprehend how having such a Commissioner will bring about any real, beneficial change unless statutory powers is given to the Commissioner. Those powers would be to impose fines on large companies who pay their smaller suppliers late and take other advantage such as disputing what they owe on dodgy grounds, as a means to prevaricate over their debts.”

Contact Insolvency & Law for any business debt issues- we will advise you on the correct course of action to take and help ensure that your business is protected from adverse Insolvency proceedings- 0207 504 1300

Photo Credits:
www.independent.co.uk
www.exeterdaily.co.uk

The post Small Business Commissioner to help firms recover billions of pounds from late payments first appeared on Company Debt Recovery.

Just over 70% of small, medium and large UK construction firms write off an average of £10,000 per year. Often firms have to write off the debt completely, settle with a significantly smaller payment or wait prolonged periods of time for full payment. This is all whilst the debtor either carries on trading as normal or ends up entering into a statutory insolvency procedure and leaving its creditors in the wind.

Peter Murray whose firm, Insolvency & Law, specialise in presenting winding up petitions and statutory demands upon debtors in the construction and contracting industry had the following to say:
“Sadly these figures are unsurprising. A significant amount of my clients are in the construction or contracting industry and some have almost lost their businesses and livelihoods through bad debt and companies prevaricating on payments for finished jobs.”

“A recent client of ours was waiting for over 2 years before we managed to intervene and advise them on presenting a winding up petition.”

Helen Wheeler who is in charge of the construction finance sector of Bibby Financial Services spoke on the repercussions to the creditors of the unpaid debts:

“Many of the businesses we speak with have suffered bad debt which have significantly hindered their ability to pay workers and suppliers. In many instances these bad debts have forced viable business to enter into insolvency.”

Peter Murray believes that often times the larger contractors who hire the smaller firms for jobs are the causes for a majority of the issues which subcontractors face:

“I have heard rumours from some of our clients who have been in very precarious circumstances because of a large contractor, that they will create disputes specifically to delay payments time and time again. This is a common tactic used and it has a detrimental effect on the subcontractor’s cash flow.”

One of Insolvency & Laws clients, Warburton Building Contractors, recently was involved in a dispute over a retention fee with a large contractor. Paul Burt, the company CFO, spoke openly on common issues that they have faced:

“In the construction industry we suffer a lot with retentions being held at the end of projects and it becomes very difficult to get that money for up to a year after the project is finished. “

“You find yourself up against big organisations and you end up scrambling around to find out who can certify the outstanding money. Very often they pass you around to different people in the organisation and then when you finally think you are getting somewhere they create a dispute so that they don’t have to pay you”

Paul Burt of Warburton contacted Peter Murray at Insolvency & Law when he was faced with a difficult debtor who was refusing to pay their significant retention fee:

“We worked for a contractor and completed a project of approximately £1million. We then came to the end of the defects liability period and we had been chasing the retention fee for about 6 months and we had lots of promises of payment. Unfortunately none of those promises were fulfilled and we needed to find an expert who could help us get our money in.”

Peter went about advising Paul and Warburton that the best way to handle the situation was to present the client with a winding up petition as the company was clearly insolvent.

Fortunately for Warburton, once the petition was presented the client decided to pay the debt.

“Presenting a winding up petition is the most affective route we advise clients to take here at Insolvency & Law” stated Peter.

“If a company is cannot pay an invoice as and when the invoice falls due, then that company is considered insolvent according to the Section 123 Insolvency Act 1986. If they wish to prove that they are not insolvent then they must pay their creditors or risk having their bank accounts frozen and potentially losing it all.”

Paul Burt was very happy with the service he received from Insolvency & Law and recommends their services on to other construction and contracting firms.
“Peter really seemed to understand what we needed and offered us a cost effective solution to get our money in.”

“Having used solicitors in the past, Insolvency & Law provided a much more efficient and cost effective solution. Peter’s expertise was very helpful and we will continue to use their services as and when we need to”

*Images Via http://www.dailymail.co.uk/home/index.html& http://uk.reuters.com/article/uk-britain-construction-idUKBRE8BD0A920121214

The post The UK construction industry writes off £2bn annually of bad debt first appeared on Company Debt Recovery.

Salford City Reds or the Red Devils as known by rugby fans, who currently sit mid table of the Rugby Super League, have been hit with a winding up petition from creditor, Konica Minolta, and have a court hearing date August 10th.

The Club have responded quickly by moving to dismiss the existence of any financial issues by releasing a statement saying that they have contacted Konica already and are awaiting a response from them.

This is not the first time that the Club have faced a precarious financial future. In 2010 a winding up petition was presented by former Club sponsor Steuer Gregsson limited. This matter was later resolved outside of court. They also become the subject of another claim from HMRC for a large outstanding tax bill, which again was later resolved.

The Club is in safe hands

The Club’s current CEO, Martin Vickers, believes that the club is being managed carefully and has a bright future based on the levels of investment from current owner, Marwan Koukash, who is a businessman and racehorse owner.

Speaking to the Manchester Evening News, Vickers had the following to say

“In understanding the reality of the Club’s position, fans need to view the Club’s accounts which show unprecedented levels of investment in a Super League Club by the Club’s owner Marwan Koukash,”

“The Club would also wish to confirm that 100 per cent of the debts of the former club are being paid in full, including those to the council”.

The I&L View

Peter Murray, whose firm Insolvency & Law are experts in issuing and defending winding up petitions had the following to say on the matter…

“Now the winding up petition has reached public domain the Club’s other creditors may decide to join the petition as supporting creditors. This would prevent withdrawal of the petition and force the Club to settle the debts claimed by those supporting creditors if the petition is to be dismissed by the court and the company remains in its pre-petition state.”

“When a company becomes the subject of a winding up petition every effort should immediately be taken to ensure its withdrawal before it enters public domain. Once other creditors receive knowledge of the petition matters for the company will very quickly become much worse and that is why immediate action is necessary”

Photo Credit: Manchester Evening News and The Guardian

The post Rugby super league team issued a creditors winding up petition first appeared on Company Debt Recovery.

Winding up petitions issued by creditors against firms based in Central London increased by 39 per cent in October 2010 compared with 10.5 percent in the rest of the country, a new study has revealed.

The increase is simply a reflection of the government cutbacks and will probably continue throughout 2011.

It’s also evidence that creditors are no longer turning to the county court to recover debts; they’re going straight to winding up because it’s a more compelling method of collection, although it is an abuse of court and legal process.

Winding up petitions can be an effective debt collection tool, but only if they’re served correctly.

An appropriate example came last summer when I was contacted by a client who’d received a winding up petition from a firm of solicitors and was due in court in three weeks.

In order to comply with insolvency rules, proceedings for a winding up petition must be advertised in the London or Edinburgh Gazette at least 10 days before a hearing, which didn’t leave much time for the law firm to act.

I contacted the solicitors on behalf of the client to negotiate payment terms and asked them to discharge the debt and not advertise the petition in the paper on the grounds that once advertised, it cannot be withdrawn and the recipient’s bank accounts will be frozen leaving them without funds to pay the debt.

The law firm agreed, but in doing so broke insolvency rules (the winding up petition must be advertised).

As a result, if the client failed to make any payments before the hearing, the winding up petition was invalid and thus unenforceable; allowing them to pay the debt at a later date and continue trading.

Are you being served? If so, contact Insolvency and Law now for confidential advice and guidance. Call 0207 504 1300.

The post Winding Up Petitions Increase, But Are They Being Served Correctly? first appeared on Company Debt Recovery.

A Winding Up Petition (WUP) is the most serious action that can be taken against a company and usually is only issued if a creditor is determined to recover an undisputed debt or put the company out of business because the debtor company is believed to be insolvent.

The creditor will issue a statutory demand, which is a formal notice giving the debtor 21 days to settle the debt. If it remains unsatisfied after that time the creditor makes an application to the High Court or a Chancery Court (a division of the High Court) District Registry to wind the company up. 

If you receive a WUP, you must act quickly and should contact business expert Peter Murray on 020 7504 1300 immediately as there may still be time to discuss options such available to for the company.  This does not have to be the end of the road if you wish to carry on trading .

The post How Do You Issue a Winding Up Petition? first appeared on Company Debt Recovery.

Cardiff was taken over in May by Malaysian gambling and property tycoon Sri Vincent Tan Chee Yioun and is just one of several English football institutions to fall foul of HMRC recently.
 
This year alone, Portsmouth, Preston, Notts County and Southend have all faced winding up orders.
 
Settling your bill is a sure way to get a petition dismissed. However, there are several ways to avoid a winding up order – compulsory liquidation.
 
Winding up petitions can be withdrawn if:
 
i)                   The petitioner decides there is no value in winding the company up. Once the threat is delivered and the debtor doesn’t pay, the petitioner may be unwilling to front the full cost of winding up proceedings.
 
ii)                The petition has not been advertised in the Gazette
 
iii)              No other creditor has supported the petition
 
iv)              The debtor gives consent
 
 
They can be dismissed if:
 
i)                   The debt has been paid
 
ii)                  The debtor goes to court and proves the petition has no real basis; disputed debt
 
iii)                There is a technicality. A petition needs to be spot on when issued and served. If it’s not technically correct, a judge can grant leave the petitioner to and amend it.

The post How Are Winding Up Petitions Dismissed and Withdrawn? first appeared on Company Debt Recovery.