Late and non-payment of invoices continues to hamper small subcontractors in the construction industry, according to new research from Bibby Financial Services (BFS).

The multinational company found that UK subcontractors write off around £2.8bn in bad debt each year.

In their Subcontracting Growth survey, conducted shortly after the collapse of Carillion, BFS revealed that three-fifths of sub contractors have written off sums in the last year and firms lose an average of £16,149 each year.

“Bad debt is a serious issue for many construction businesses and, across the entire sector, more than £2.8bn is written off each year, representing a significant economic leakage,” said BFS specialist finance director Kash Ahmad.

Ahmad continued: “Bad debt occurs due to insolvency in the supply chain, protracted default or dispute, and the issue is particularly challenging for smaller firms that have already footed the bill for raw material and labour costs.”

In the survey of 250 subcontractors, almost a fifth of (17%) said the most common reason for not receiving a full billing was due to a customer going out of business.

A change in the scope of work part way through a project (8%), queries over the quality of work (6%) and contract disputes (6%) were also reported as top issues.

More than two-fifths of businesses (44%) said that construction contracts are difficult to understand and only 6% of firms seek expert advice.

Kash Ahmad added: “The Carillion situation has highlighted three fundamental issues in the sector: endemic late payment, bad debt and complexity of contracts. Each of these issues needs to be tackled by both the public and private sectors.”

He continued: “There are also measures that small businesses can take in order to protect themselves against such issues. Such measures can include conducting thorough debtor reviews, seeking advice on contract negotiation and considering bad debt protection.”

Almost one sixth (15%) of the subcontractors surveyed claim that they were impacted by Carillion’s collapse.

Carillion collapsed in January with £900m of debts. Many subcontractors will not receive payment from the compulsory liquidation.

If you are a director of a company that is struggling with cash flow or bad debts, speak to a specialist business debt adviser today. Call: 0800 611 8888.