A survey by a debt recovery firm based on Companies House data suggests that construction SMEs were burdened with an average “trade debt” of £484,000 in 2013/14.
Debt Guard Solicitors suggests that the findings show that the sector’s smaller firms are still taking the strain of the downturn – even as the upturn takes hold.
Trade debt is money owed to a business – including current invoices and overdue payments – for goods and services supplied to customers over the course of a financial year.
Read related articles
How to use the legal system to improve cash flow
Payment Charter: bad timing for main contractors, good timing for change?
Companies with 10-49 employees and a turnover between £2m and £10m were the worst hit, with each on average £627,000 in debt – an average of 16% of each firm’s turnover.
Firms with one to nine employees and a turnover less than £2m each had an average trade debt of £41,000, accounting for a slightly smaller 14% of turnover.
Medium-sized companies with 50-249 employees and a turnover between £10m and £100m, as expected, had the highest levels of SME trade debt at £969,000. However, this accounted for a more manageable 13% of turnover.
The findings were based on account details submitted to Companies House by 550 construction SMEs, bringing fresh attention to the problem of late payment.
The sample included a mix of micro, small and medium-sized construction companies from all UK regions to ensure a reflective analysis. The sample was made up of micro SMEs (317), small SMEs (132), and medium SMEs (101).
Mark Burgess, chief operating officer at Debt Guard Solicitors, said: “This research highlights the financial headache caused by outstanding and unpaid bills in the construction sector. It is clear that smaller SMEs in particular need much greater support in this respect, as many are facing the very real threat of closure due to trade debt pressure.
“Our message to all construction SMEs struggling with late payment is, ‘don’t write off your debt’, look at legal ways to professionally recover it as, by improving credit flow, this will help put your business on a more stable financial footing.”
