Customers squeeze trades to breaking point in recession

Struggling trade contractors are finding themselves squeezed by their clients in the recession, as customers are reducing spend, haggling down prices, insisting on tighter payment terms and paying late.

The findings are revealed in new research from business insurance comparator SimplyBusiness.co.uk. The study, Constriction, reveals that as a result as many as 42% of trades do not expect their businesses to survive past the end of this financial year.

Tony Deacon, chief executive of SimplyBusiness.co.uk, comments: “In terms of recession, tradesmen are in the eye of the storm. Financially, times have never been tougher and it’s no surprise that the cracks are starting to show.”

According to the report, a massive 80% of trades have witnessed falling spend in the recession. At the same time, for the work that is commissioned, customers are haggling hard on price, as identified by 70% of trades.

Indeed, nearly all respondents (97%) complain that customers are ‘unfairly’ squeezing their profit margins.

Cash flows are also being hit, with customers paying invoices an average of 35 days late.

Nearly three quarters of trades (64%) fear a rise in customers defaulting entirely on their debt, yet alarmingly over a quarter (26%) are scaling back on performing financial due diligence checks on new clients.

Indeed, 70% of trades cite tougher contractual and payment terms from customers as a critical current risk to their business.

As a result, more than two fifths (42%) of tradesmen do not expect their businesses to survive past the end of the current financial year if the tough market conditions persist.

The report gives the following advice:

• Be brave – cut out the customers that create the most work and offer the least return
• Look into debt management options and cashflow solutions
• Look for new ways to do business – online lead generation for example (ie. ratedpeople.com)

There is, however, some silver lining to the recession cloud - 38% of tradesmen have experienced an upturn in home improvement works as, owing to falling or stagnant house prices, domestic customers are opting against moving home.