The Carillion Crisis and You

Monday January 22, 2018

We talk about cash flow management a lot at RIFT, and with good reason. The collapse of the construction giant Carillion this month provides a painful example of how important it is to plan for the worst. The entire industry's in damage control mode right now, with both firms and workers having legitimate concerns about getting paid. For small businesses tied into the Carillion supply chain, this is crunch time – the moment where they find out if their disaster preparation was good enough.

The good news is that they aren't going it alone in this. The government has already set up a task force to tackle what they're calling the “domino” effect of Carillion's liquidation on the SMEs in business with it. Meanwhile, the financial sector's stepping in with emergency measures to help out its customers. Several large banks are  pledging tens of millions of pounds toward easing the crisis for businesses, with more looking into what they can do before committing themselves. Nationwide has already announced it'll put 250 Carillion workers on its books to save their jobs, and is reaching out to 3rd party suppliers in hope of protecting 1,000 more.

Looking further ahead, there's some speculation about what the fall of Carillion might mean for UK construction SMEs in future – including calls for the government to spread its procurement eggs over more baskets. In time, that could actually mean smaller firms getting a direct shot at government deals that would otherwise all have gone to a single giant.  Putting those contracts in SME hands might actually be a healthy option all round, given the reputation the behemoths have for squeezing subcontractors with bad deals and eye-watering payment terms. Of course, getting to that future point means surviving the Carillion fallout now.

According to Siemens Financial Services, slow payments to UK SMEs are costing them close to £11 billion and 130 hours per year chasing them up. Adding in the cost of unpaid invoices, that figure leaps to a terrifying £250 billion. Small businesses with a turnover of under £1 million are typically looking at 72-day waiting periods for payments, with some reaching as high as 90 days for payments from larger businesses. In the case of Carillion, some suppliers were being made to wait an astonishing 120 days. When you've got no choice but to accept those kinds of terms, it's more critical than ever that you've got your cash flow ducks in a row.

We know we beat this drum pretty hard at RIFT, but if you ever needed a concrete example of why cash flow matters, Carillion would be it. We take great care over checking the road ahead for you, seeking out obstacles and opportunities, and our quarterly reviews give you a practical, realistic appraisal of how your business is doing. Talk to RIFT Accounting about making sure you're in the best possible position.

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