Delayed payments and rising costs see Britain’s builders struggle
A new report has concluded that late payments and rising costs are crippling Britain’s construction sector and builders and found that firms already in, or at risk of, financial distress make up more than eight in ten companies.
The report, Fixing the Foundations, was based on a survey of senior financial managers of property and building companies across the UK, and found worrying trends.
However, not every builder that gets into financial difficulty has a bad business…
Sometimes they’re simply waiting to be paid.
93% of those construction businesses surveyed are experiencing late payments, with invoices being paid an average of 53 days late.
Let’s think about that figure for a second…..
- They have paid out for labour.
- They have paid their suppliers.
- And they have paid HMRC.
But they are still then waiting nearly two months for their customers to pay them, so its no surprise that many profitable businesses end up suffering from cash flow problems.
The report also found that:
- One in five (20%) firms are having to fund their own projects while they wait to be paid.
- 18% say late payments are now one of the biggest threats to their business.
Rising costs are also a significant problem hitting profit margins. Inflation factors over the past few years such as COVID, higher employment costs, the Russian invasion of Ukraine, the Middle East conflict and unpredictable US tariffs have not only increased costs but also delayed projects.
For contracts that were signed before climbing inflation, one in five companies have seen seriously reduced profitability and a further 18% say some have been delayed to the point of no longer being profitable at all.
Another serious concern included supply chains, according to the report’s publisher, Menzies. 18% were not confident that their business could survive a single insolvency or change in the supply chain.
Cash is still king.
The upshot of this is cash is still king.
You can make a healthy profit on paper, but if cash isn’t coming into the bank quickly enough, it creates pressure throughout the entire business and this is exactly why I encourage builders to look beyond year-end accounts.
Regular management information, cash flow forecasting and understanding where your cash is tied up can make the difference between reacting to problems and staying one step ahead, and this is where your accountant comes in.
If you would to have a discussion about we could help you better understand your numbers and improve your cashflow then please don’t hesitate to get in touch.
