Carillion: time to support the SMEs

The collapse of construction and support services giant Carillion has sent shockwaves through the business community as many small companies are now in real danger of getting none of the money they are owed.

We haven’t seen a corporate failure of this size for some time and, as the days pass, the knock-on effects are becoming increasingly visible.

The fact is, it’s by no means just Carillion and its unfortunate employees (over 20,000 in the UK) that are suffering. Sadly, as so often happens, it is thousands of small businesses around the country who will be suffering too – the SMEs that carried out contracts on Carillion’s behalf, or that provided services to Carillion.

One thing that has contributed to the amounts owed to SMEs is that Carillion introduced 120-day payment terms in 2013 for suppliers. Extended payment terms like this really are hard to justify and only put additional strain on small companies’ cash flows. The issue of late payments was big news in 2017, and a system was put in place to tackle the challenge. The collapse of a company the size of Carillion and the aftermath resulting from its payment practices suggest that this might need reassessing.

A taskforce has been set up to look at the challenges faced by companies affected by Carillion’s shut-down and to provide much-needed support. With a complex situation such as this, there are no easy answers but it is a great first step towards tackling the consequences of such a large business failure.

For businesses affected, and those small companies heavily reliant on a contract deal that accounts for more than 50% of their revenue, we make the following recommendations:

  • Understand your cashflow situation. Do you need to have a discussion with your funding provider about supporting you should the worst happen?
  • Manage your debtor risk. It’s easy to get swept up in the glow of winning a major contract with a giant like Carillion. But, a large company isn’t necessarily any safer (as we have seen) and you must do your due diligence no matter what.
  • Reduce your reliance on a single contract. A big contract can ease day-to-day pressures for a while. But, if you are reliant on that contract, and it goes the wrong way, then you are exposed to enormous risk. Check what you need to do to safeguard yourself against this hazard.

There are of course, lots of other measures that you can take If you are affected, and seeking support, we're here to help:

  • Unlimited funding pot is available for affected companies who need support with their cashflow to help them through this situation
  • Dedicated staff, who will take a look at every company on a case-by-case basis to ascertain the right support needed
  • Favourable rates for any small company that needs support through this challenging time
  • A team of dedicated construction Finance experts who are used to the challenges this sector faces and can support you with identifying the right funding options for you.
  • Access to increased credit cover to support businesses negatively impacted by the collapse of Carillion.
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