The liquidation of one of the UK’s largest multinational facilities management and construction services companies has sent shock waves through many SME businesses and Government officials over the past few weeks. The name ‘Carillion’, is a corruption of the word ‘carillon’ (a peal of bells) and yet few seemed to acknowledge the warning bells, until the position became untenable just before Christmas.
Whilst everyone has real concerns for the staff directly employed by Carillion PLC, there are a significant number of SME sub-contractors that will be hit hard by the non-payment of invoices, including retentions from previous work completed over the past year. Average debts owed to micro businesses (fewer than 10 employees) were £98,000; medium-sized businesses (50-249 employees) were owed on average £236,000.
What are the Banks and HMRC doing to help?
Following the liquidation, Banks and HMRC have committed to provide help and support.
Banks have set up funds to support affected businesses. To date, the following funds have been announced:
- RBS – £75 million
- LLoyds – £50 million
- HSBC – £100 million
- Another 17 Banks have signed up to the standards of lending practise to help business customers who are facing a period of financial hardship.
HMRC, through its Business Payment Support Services (BPSS), will consider each case and can;
- agree instalment arrangements if you’re unable to pay your tax on time following the Carillion collapse,
- suspend any debt collection proceedings,
- review penalties for missing statutory deadlines,
- reduce any payments on account,
- agree to defer payments due to short-term cash flow difficulties.
What impact will the Carillion collapse have on SME’s?
- The likelihood is existing debts will only deliver a fraction of their face value and will take some time to settle, leaving a cash hole
- Some SMEs may already have utilised all cash reserves in funding existing projects and have no further capacity to support ongoing trading
- The Carillion work previously undertake is no longer available going forward – at the time of writing, some existing contracts are continuing against the assurance of payment for work post liquidation date
- Some allowance for bad debts will ease tax positions for some but does not help the immediate position
- The ‘ripple effect’ of the liquidation is not yet fully understood – are your suppliers and customers affected? Will this impact your business?
- If Carillion work is a large proportion of your business, this could lead to increasing cash-flow pressures over the coming months
Review your existing debtor book to establish any Carillion exposure. Include discussions around this area with your suppliers and customers to see if any of them are affected.
The Banks have given a commitment to help, but they are going to want to be satisfied that you have a strategy in place to restore stability within your business. This may involve some more detailed business planning to re-structure or re-finance options to ease cash-flow over the longer term.
Consider what is happening with the existing contracts – we know that some are continuing, but many remain only part way through? Who is the end customer? What are they doing? They may well be looking to contract existing sub-contractors directly or employ a replacement for Carillion – will this involve re-tendering and potentially further delays?
Whatever happens, you need to stay close to events and ensure that you regularly review other debtor payments – an extension of debtor period beyond terms may be an indicator of a Carillion problem.
If you have any questions or would like some support in preparing a workable strategy and business plan, please don’t hesitate to get in touch with Colin on firstname.lastname@example.org