Construction SMEs write off £2bn a year in bad debt

Construction firms in the UK are writing off nearly £2bn each year due in outstanding payments, according to a new report.

Published by business funder Bibby Financial Services and consultant The Vinden Partnership, the Planning for Growth report reveals that over 70% of SME construction firms have suffered bad debt over the past three years.

The average amount scrapped by these firms during this period was £30,465, equating to £1.9bn each year across the sector.

Helen Wheeler, managing director of construction finance at Bibby Financial Services, said: “Bad debt is a serious issue for many construction businesses and represents a huge leakage in terms of sector output. Non-payment can occur due to customer insolvency, payment default or dispute, and the issue is severely problematic for smaller firms who have often already footed the bill for labour and material costs.

“This places a massive strain on these businesses, often causing viable firms to fold. The problem is particularly acute for those who do not have sufficient working capital or bad debt protection in place to cover against this situation.”

Peter Vinden, managing director of The Vinden Partnership, added that the cost of legal action often deterred smaller firms from pursuing dispute resolution procedures. He said: “Disputes and litigation are a common occurrence in the industry, but often smaller firms and subcontractors do not have either the legal expertise or financial resources to pursue action which would ensure they receive the amount owed from customers.”