A survey by trade boy R3 has found that late payments by customers for goods and services are responsible for 20% of insolvency events.
The survey also found that 47% of insolvency practitioners questioned had seen at least one instance of late payment being a major contributing factor to the demise of a business in the past year.
The construction sector has been identified as the worst affected sector with 59% of corporate insolvency practitioners saying that the market had the worst track record for paying its bills on time.
Liz Bingham, president of R3 said: “The construction sector is notorious amongst insolvency practitioners for its late payment problems, which are almost endemic to the sector. Businesses in the sector are also particularly vulnerable to insolvency.”
This coupled with the Office of National Statistics’ report that UK construction output shrank by 2.8% in February 2014 means that the construction industry continues to face an uphill struggle.
On a positive note, Howard Archer, the chief UK and European economist at HIS Global Insight, said that it was still likely that construction output would still see a clear overall expansion in the first quarter of 2014. Perhaps now is the time for the construction sector to address the issue of late payment and tighten up credit control systems to reduce the risk of cash flow problems resulting in insolvency.
It is important that businesses actively manage their debtors and have effective credit control procedures in place. Professional help should be sought at the earliest opportunity where businesses are concerned about their financial position.
By Nicola Whittle, insolvency solicitor
Stephensons has specialists that can assist businesses with debt recovery problems or those facing insolvency.
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