Carillion

Although early days yet and the signs were ‘on the wall’ for at least 18 months, the fall out from the demise of Carillion will be huge.

I write this article with no sense of satisfaction that ‘I told you so’.  It was obvious long ago and no company or organisation in this modern world is ‘too big to fail’.

It has always been obvious to me, particularly in the Building Sector, where, on larger contracts, profit margins are driven down by competition, there has to be a weak point.  In this case and many others , now and in the past, it is the payment department. Perhaps I should really call it the strong point.

Lets keep it simple: to protect cash flow (robbing Peter to pay Paul) companies will simply slow down payments, create elaborate discount schemes, create delayed sign-offs, introduce payment hurdles from 16 digit time barred order numbers to near impossible on-line payment demand applications. I have pointed out over the years many larger companies deliberately introducing Accounts Payable policies designed to delay and frustrate suppliers, from the largest companies in the Food industry through to what we see today in the Building sector, the tip of a very dangerous iceberg.  Companies operating on a day to day cash basis using suppliers money – not necessarily the high risk expense of secured bankers support – but often the smaller supplier, keen to obtain the bigger contracts and often out gunned by the weight of clever manipulation on payments from the bigger customer, all providing a massive Thank You from shareholders by way of bonuses to the directors of same.

As a Commercial Debt Collector I am often accused of being very cynical in the way I describe these payment practices, but as we go forward and see what is happening it really is obvious. As there are more and more constraints on cash, borrowings of all kinds and pressure on margins the smaller supplier is often the victim.  It is endemic throughout our business culture and that includes Government, Local Government, The NHS and businesses in general.

Carillion in particular had an inbuilt and sustained culture and policy deliberately operating to slow payments and thus contribute to their day to day limited cash reserves, until now. Together with other reasons of course it now results in the demise of thousands of jobs and businesses directly and worse still indirectly.

I have always believed in the old adage KISS, Keep It Simple Stupid.  In my world of credit control and collection over the past 10 years I have seen a slow but steady influx of ideas regarding computation of DSO figures, discount payment schemes, cash flow analysis, computer programmes giving the most complex of cash flow projections and algorithms to maintain optimum performance and all sorts of legislation to protect the consumer. I have seen the relaxation of Companies House rules in regards to Director details, introduction of Pre Action Protocols, Greater Data Protection Rules, Pension Fund Protections and on it goes.  Some good some bad, I leave it to you to decide, yet still we see the second largest construction and services company in the UK fail.

It is time to re-examine just how responsible directors of these types of companies should be.  Indeed I see directors of the smallest companies as well, using Companies legislation to protect the business from creditors when it fails.  Limited liability, being the key, yet the flouting of the rules has been obvious but the ability to make individuals responsible has been impossible in many cases, both by way of the Courts and the economics of the matter.

Unfortunately in the building sector in particular many small contractors/suppliers simply have not had the correct paper work in place to fight their corner regarding payments. Additions and amendments not properly documented or agreed and constant arguments with Quantity Surveyors simply going around in circles until a significantly lower payment compromise can be reached, many months into the future.

It is a fact of life that bullies never prosper, but at what cost.  We need to look at payment practices in more depth, not just by way of increased implementation of Late Payment Legislation in the commercial sector, but exactly what methods companies are using to delay payment and bring about some rules to protect the supplier in more simple terms.

For instance those companies that simply stop payment if no order number is available, it should be easier to ensure that other proofs of supply and/or delivery is accepted without delaying payment significantly.  If  a Limited Company has not made a return in due time, regardless of the fact that it is ‘Live’ at Companies House, the director(s) should be treated as an individual, with personal assets at risk if sued for payment.

Suppliers must be aware of the payment risks whoever they supply.  It is important to act quickly if payment is delayed and have in place the best possible paper work to support the order, terms of trade, delivery etc.  It is not always easy to take a commanding attitude when one is a small supplier in a competitive world but suppliers must have enough faith in the product or service supplied to be a little more forthright in demanding payment in due time, it does pay off.

I know there are many reasons why companies fail but my focus is on avoiding late payment and hope that rules can change to ensure there is never another Carillion type disaster.  We seem to say the same thing every time a big name goes……….Rover……Woolthworths…….Northern Rock……….BHS……….!