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

Photo Credits:

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.