Delayed and failed payment claims are on the rise, suggesting that things could get worse. More construction companies are being bankrupted by high inflation and interest rates, and the latest figures on late payment claims suggest the situation could get worse.
According to the UK Insolvency Agency, 471 construction companies went bust in May, up 34% year-on-year and the highest number in recent years. Colin Hardman, restructuring and recovery partner
at Evelyn Partners, said businesses were going through "very difficult times" as higher interest rates adversely affected profits and access to new funding. "With wage increases typically lagging inflation, we expect the business environment to continue to be extremely challenging," he said, urging companies to prepare a rolling 13-week cash flow forecast to ensure they understand their cash flow position and have time to implement recovery plans if necessary. The
high bankruptcy rate shows no sign of abating, with data collected by insurer Atradius showing a 41% increase in late and failed payment claims in the second quarter compared with the first quarter and a 178% increase year-on-year. James Burgess, head of business
at Atradius, said the figures "clearly show that pressures continue to rise as inflation, rising interest rates, rising costs and prudent lenders put businesses in conflict with insolvency". "With the average fixed mortgage rate this week rising to 6.64% compared to 2.87% at the same time last year, construction businesses are likely to feel the pinch as buyers continue to spend cautiously and home building, renovation and extension projects are all likely to suffer," he added.
"Consumer caution is bound to affect home construction, and we are likely to see fewer new builds as the industry (and buyers) adjust, with average property prices down 2.6% over the past year, the fastest annual decline since 2011."
"In the coming months, construction companies need to make sure they are focused on controlling costs and liquidity, protecting borrowing agreements and prioritizing strong financial projections to give themselves the best chance of survival."
According to the Construction Cost Information Service, labor costs will be the biggest challenge for businesses struggling to survive.
It forecasts a 10% rise in the price of labour as the cost of living crisis exerts upward pressure on wage inflation.
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