Carillion anniversary: Steps must be taken to protect suppliers against another payment practice scandal

Exactly one year on from Carillion’s collapse, business leaders and industry heads are urging the government to do more to protect small and medium sized businesses (SMEs) and ensure a similar situation does not happen again.

When UK construction and services firm Carillion went into administration last year in January, owing £7 billion in total, according to the Official Receiver, subcontractors and suppliers were left with nothing. Some did not survive.

A managing director of an Electrical Contractors’ Association member SME which worked for Carillion, says: “We came as close to going out of business as you possibly can.  It wasn’t just the money they owed us, it was the detrimental effect it had on our order book, and letting people go. When Carillion went under, other companies started to hold onto cash longer.”

Other business and industry leaders say they are concerned that the core issues relating to late payment and retentions have still not been addressed, leading the Federation of Small Businesses (FSB) to urge government to implement a three-point plan which it believes will stamp out these poor payment practices. The plan involves the following reforms:

• The Small Business Commissioner should use his new powers to strengthen the Prompt Payment Code. This includes introducing tougher penalties for those companies that break the rules.

• Non-Executive Directors responsible for payment practices and supplier relationships should be appointed to the boards of big companies.

• Adopt Project Bank Accounts in all major public sector contracts, with proper parliamentary accountability to ensure their use.

FSB National Chairman Mike Cherry, says: “The collapse of Carillion was a watershed moment that brutally exposed the shocking ways that some big businesses treat their suppliers.

“The construction giant used its dominant position to squeeze smaller firms with late payments and unreasonable payment terms in an attempt to shore up its own precarious position. These practices did not save them and their failure has resulted in very real human consequences.

“A year on, we have seen the Government be proactive in attempting to improve public procurement and stamp out poor payment practices. Recent reforms to crackdown on public sector suppliers that don’t pay on time are welcome and send a clear message that paying late is not okay. However, more must be done to ensure private, as well as public sector, supply chains pay on time.”

Has your business been impacted by the collapse of Carillion?

In this volatile economic landscape, it is essential that UK SME business owners maintain effective management of their company’s working capital and put processes in place to survive and thrive in challenging times. A first step is to contact our specialist advisers at Beavis Morgan for guidance and strategic advice to help in formulating plans for your business in order to strengthen its prospects of success, achieve growth and maximise wealth.

If you have any concerns about your personal financial situation or that of your business, contact Andy Pear or Mike Solomons at BM Advisory to arrange an initial confidential consultation which will be free of charge and without obligation. Together we will discuss your individual situation and advise on the best course of action.

Our partner business BM Structured Finance is also available to help with sourcing and restructuring debt finance for SME businesses.

For more information, contact Steve Govey or your usual Beavis Morgan Partner.