Against a backdrop of a delayed spring, the latest UK construction output figures from the Office for National Statistics make for sobering reading.
The ONS states that construction output for the three-month on three-month period in January 2018 continued to contract for the ninth consecutive period, falling by one percent.
Carillion’s well-publicised collapse won’t have helped matters.
But that’s not to say we should be pessimistic.
Whilst it’s been a tough winter with a series of extreme cold snaps, which will have undoubtedly left building sites empty for short periods, there are projects in the pipeline which should stimulate output later in the year.
There will undoubtedly be a flurry of activity as those firms now tasked with delivering HS2 look to get the project up and running in the wake of Carillion.
And here in the West Midlands, there will be a series of construction contracts to renovate or deliver new venues for the 2022 Commonwealth Games.
On top of this, there are hopes that the Government’s overhaul of the Planning Policy Framework, announced recently, will assist construction projects rather than hamper them. We shall see.
Despite there being hope on the horizon, there is, however, a period of uncertainty which construction firms need to survive before good times return.
With that in mind, there are a number of steps which sensible managers should take in order to maintain the viability of their businesses.
Firstly, it’s important to review your clients and identify areas where you are potentially exposed. For example, if you’re reliant on one larger client, whose failure would spell curtains for your firm, it’s perhaps time to work on business development.
Secondly, if you are exposed, look at your payment terms. As we approach the end of the financial year, it’s a good time to do this and make changes to payments, if contracts permit, of course. A client’s reaction to a suggestion you’re considering changing terms from 30 days to seven days might provide a good clue as to their cash flow situation.
Thirdly, make sure your accounts department is on top of any late payments and has a strategy for spotting potential problems before arrears become large debts. Make sure your finance people have good relationships and easy access to client accounts departments. Regular, friendly communication between these two parties is vital.
Fourthly, go on Companies House website and monitor your clients’ financial performance. Stay ahead of the game, and keep an eye on the media for stories about redundancies and site closures etc.
Finally, in addition to the above there are further ways in which you can protect your business from late payments: taking out a trade credit insurance policy is a tried and tested protection against debtor insolvency.
There are a number of products available, such as whole turnover, which covers your entire client book, or specific account, which can be tied to a client where you feel the risk of non-payment is high.
Policies are also available to protect you against a client going into liquidation part way through a project (this is particularly pertinent in the construction industry). Additionally, supplier insolvency can also be covered, protecting you against the challenges of having to find a new supplier part way through a crucial project.
Another benefit of trade credit insurance is that it often acts as a barometer for a client’s performance. If you get a call from your broker stating that the underwriter is reducing the amount of cover for a particular client, alarm bells should ring and a contingency plan can be put in place.
If you combine a sensible and realistic approach to client service and management, along with appropriate protections, your business should be fit for the future, even in times of uncertainty such as those facing the construction sector right now.
By Dean Smith, Divisional Director, Trade Credit and Surety, Jobson James