More NewsConstruction Industry Building Up Bad Debt Problems, Says Report

Construction Industry Building Up Bad Debt Problems, Says Report

Up to 1,000 construction companies could needlessly go bust in 2003 and a further 1,000 in 2004 unless they overhaul their approach to credit insurance and cashflow management, according to a report by credit management company Gerling NCM. Analysis of the highest profile failures by Gerling NCM’s economists revealed that almost a third of the 2,334 construction firms that failed in 2002, went into receivership because of cashflow problems or the impact of a major bad debt. According to Tony Garner, Gerling NCM’s Trade Sector Development Manager, all parts of the construction industry are vulnerable to failure: ‘The industrial and commercial building sector is either stagnant or oversupplied. Construction companies operating in this space are focusing on winning jobs – almost at any price. As a result their margins are incredibly tight, leaving no financial headroom if a customer fails. If you operate on a margin of 10 per cent, and a customer goes bust owing you £100,000, you need to complete a £1 million contract just to make up the loss. That’s why we have seen bad debts take out even the major players.’

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