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SME cashflow problems “extremely worrying”

UK: The Specialist Engineering Contractors’ (SEC) Group has warned that current cashflow problems in construction are unsustainable.

According to the SEC – which represents SMEs in the construction engineering sector – SMEs are relying more and more on their directors for funding as a result of late and lengthy payment periods and lack of access to reasonably priced lines of credit. Directors are said to have lent their construction businesses £38m in 2015/16, as compared to £29.7m in 2013/4.

Describing the figures as “extremely worrying”, SEC Group CEO, Professor Rudi Klein, said: “With SMEs now relying more and more on their directors for their liquidity the cashflow position in the industry is now critical.”

Klein maintains that this is against the background of the poor state of the balance sheets of the UK’s largest construction firms recently highlighted by the debt-ridden problems faced by Carillion, the second largest construction company.

“These companies are taking longer and longer to pay their supply chains with SMEs having to spend the bulk of their contract values up front before receiving any payment,” Klein added.

The SEC Group is pressing the Government to introduce legislation to mandate the use of project bank accounts (PBA) across the whole of public sector construction; ring-fence cash retentions, and mandate 30 day payments.

PBAs, in which monies are paid by public sector clients directly to firms in the supply chain via a ring-fenced bank account, are already used in Northern Ireland and Scotland and by some government departments and agencies such as Highways England.

According to the SEC, the top dozen UK contractors are withholding almost £1bn worth of retentions from their supply chains.

Related stories:

Firms hit by late public sector payments22 August 2017
UK: Nearly two-thirds of engineering services firms are not being paid within 30 days by public sector bodies – a contravention of government legislation. Read more…

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