As the UK trade credit industry looks ahead to 2024, several challenges are poised to shape its landscape, particularly within the UK construction sector. 

It is predicted that we will experience more of the same with regards to insolvency for the first quarter of 2024 but forecasters remain positive that Q2 will see insolvency figures even out and even starting to reduce. 

Understanding and proactively addressing the challenges 2024 may bring will be vital for construction businesses offering trade credit accounts to thrive in a rapidly evolving business environment.

Cash Collection: 

The focus on cash collection and keeping cash flowing remains high on the agenda for 2024. The UK construction sector has and continue to face significant difficulties in keeping lines of communication open with customers who owe them money. 

Economic uncertainties and market fluctuations can further complicate cash collection efforts. With customers potentially facing financial constraints that impact their ability to make payments on time, or at all. 

Inefficient or delayed cash collection processes will have a big impact on cash flow. Late or incomplete payments from customers can strain relationships and erode trust. In some cases, businesses may need to allocate additional resources to chase outstanding payments, diverting time and manpower from core operations. 

Implementing robust invoicing and collection systems, and fostering transparent communication with customers are essential strategies to overcome the difficulties associated with cash collection, ensuring financial stability and sustained business growth.

Understanding what late payment interest and compensation you’re entitled to claim will also support your cash collections. Whether that be using contractual terms or statutory legislation for negotiations or to compensate for late payment and / or third-party collection charges will help to increase cash collections as we head into 2024

Minimising Exposure to Insolvency:

Avoiding customer insolvency is a paramount concern as we head into 2024. 

A proactive and vigilant approach to risk management is essential, beginning with thorough credit risk evaluations before entering into agreements with customers. 

Researching the variety of credit information solutions on the market and specific to your industry to find right provider for you will be vital to face the 2024 challenges head on. 

Regularly monitoring any financial changes relating to your customers through ongoing credit evaluations and staying attuned to changes in their payment behaviors can provide early warning signs of potential insolvency. 

Understanding who your customers are working for and who they are being paid by will also form a vital part of the credit risk evaluation. Now more than ever researching and evaluating your customer’s, customers ability to pay and reacting to financial changes with them will support you with minimising your exposure to insolvency. 

Diversifying your customer portfolio and not relying too heavily on a few key clients will help spread risk. Implementing clear and transparent communication channels to discuss payment terms and address any issues promptly can foster a collaborative relationship. 

Credit Risk Management:

In 2024, businesses must enhance their credit risk assessment models to account for evolving business landscapes. This involves utilising credit information, relevant to the industry, providing more accurate and timely insights into the creditworthiness of businesses. Tracking financial changes and reacting to those changes quickly and appropriately, alongside effective debt recovery processes and partners will not only help you to weather the challenges of 2024 but also position your business for sustainable growth in the years to come.

As we enter into December, the Department for Business and Trade have released their monthly statistics on 6th December 2023. We discuss below turnover trends, turnover forecast, future price increases and construction output.

1. Turnover Trends:

In October 2023, a substantial 20.6% of construction businesses reported a decreased turnover when compared to the previous month, while 10.6% advised of an increased turnover. There is a decrease of 4% in the number of construction businesses reporting an increased turnover when comparing October 2023 with September 2023, a continued trend. 

2. Turnover Forecast:

December is traditionally a quieter month for the construction industry and this is reflected in the turnover forecast for December as around 27% of construction businesses are anticipating a decrease in turnover. However, 45.7%  of construction businesses expect their turnover to stay the same, this is down from the 56% of construction businesses who expected their turnover to stay the same for the month of November 2023. 

3. Future Price Increases:

Despite the uncertainty above, future price increases seem to remain stable with only 12% of construction businesses considering price increases in December. The majority, a staggering 63% expect their prices will stay the same, an increase of 11% when compared to the expected future price increases for November. 

4. Construction Output 

In September 2023, the monthly construction output increased by 0.4% in volume, a stark contrast from the 0.5% decrease in August 2023 and 0.4% decrease in July 2023. The increase in construction volume for September 2023, can be attributed to an increase in repair and maintenance. 

Concluding Remarks

Naturally, as we enter into the winter months, activity in the construction industry starts to reduce, increasing the likelihood of insolvency and uncertainty. On a positive note however, the vast majority of construction businesses are not considering price hikes in December showing some sign of stability. Due diligence at this time is key in conjunction with closely observing key suppliers and clients for any early financial warning signs, mitigating the risk of bad debts. 

Reports of overdue payments shared exclusively within the Top Service community by Top Service members continue to climb as we make our way through the last quarter of 2023. 

Whilst this demonstrates an uncertain time for those operating within the construction industry, sharing trading experiences is the most up to date information available, enabling informed credit decisions to be made. 

Also recorded is a substantial 27% increase in the number of adverse trading experiences reported to us in 2023 compared to 2022. An adverse trading experience can include a member reporting that they have needed to take legal action against a company, pass to a third party for collection, advising that their account is overdue or that they have needed to send a third party action letter or email. 

Additional Adverse Reports in the Domestic Building Sector

Furthermore, we are able to see an additional increase in the number of reports raised against housebuilders and companies that construct domestic buildings. This may be due to the sharp rise in mortgage rates causing uncertainty in homebuyers and therefore a sudden decrease in the demand for property adding to financial pressures on these companies. 

Forecast for 2023

We are able to forecast a 37% increase in adverse payment reports for 2023 overall compared to 2022. This figure emphasises the need for a proactive approach when it comes to credit to assist in mitigating the risks of a bad debt. 

Construction activity often declines during the winter months and this seasonal factor can also contribute to the financial challenges faced by companies within the construction industry. 

Protecting Your Business from Overdue Payments

Waiting for a Limited Company to file their accounts, which can take up to 1 year and 9 months, may not be practical when trying to assess a company’s creditworthiness especially within an industry such as construction where changes to a company can happen fast, therefore we recommend seeking the services of a reputable credit reference agency if you have not already done so. 

Reviewing current credit management practices and tools can assist you in making well informed decisions and therefore reducing the risk of overdue payments. 

It’s been well documented that Squibb Group have had a series of issues over the last 12 months.

Founded by Harry Squibb 75 years ago, the company quickly established it’s name in the construction industry as one of the largest demolition contractors in the UK.

Take a look at a timeline of a downward spiral of events over the past 12 months of a firm 75 years old, leaving at least 300 creditors owed at least £23.3million and many of it’s 200 + employees looking for work.

The Economic Crime and Corporate Transparency Act recently came into force. This new legislation gives Companies House increased powers to tackle economic crime including the types of fraudulent activity that leaves unsuspecting trade creditors out of pocket. The hope is that these new measures will lead to improved transparency and more accurate and trusted information on the Companies House register.

Under the new legislation all companies will need to declare that the future activities of the company will be lawful. This will need to be confirmed every year on the company’s annual ‘confirmation statement’ which is filed with Companies House. A company will not be able to file a confirmation statement without making this declaration. This will apply to all confirmation statements from early 2024.

Presumably fraudsters will just make the declaration anyway but perhaps the declaration is more about giving prosecutors additional ammunition when they do manage to get fraudsters into court.

More information is available here: https://changestoukcompanylaw.campaign.gov.uk/confirmation-statement-changes/

The Economic Crime and Corporate Transparency Act recently came into force. This new legislation gives Companies House increased powers to tackle economic crime including the types of fraudulent activity that leaves unsuspecting trade creditors out of pocket.

Every company, including dormant and non-trading limited companies, must file a ‘confirmation statement’ once a year. This information consists of the company’s current registered office address, its directors, its share capital, its shareholders and its people with significant control (PSC). Even if there have been no changes during the year the company must still file to confirm that the information held on the Companies House public register is correct and up-to-date.

Under the new act, all companies will need to provide a registered email address. Companies House will use this email address to communicate with the company – it will not be available to the public.

From 2024 new companies will need to give a registered email address when they incorporate and existing companies will need to give a registered email address when they file their next ‘confirmation statement’.

It is not known whether Companies House will use the email addresses to flag up suspicious companies in some way or whether it is just to aid communication.

More information is available here: https://changestoukcompanylaw.campaign.gov.uk/confirmation-statement-changes/

The Economic Crime and Corporate Transparency Act recently came into force. This new legislation gives Companies House increased powers to tackle economic crime including the types of fraudulent activity that leaves unsuspecting trade creditors out of pocket. The hope is that these new measures will lead to improved transparency and more accurate and trusted information on the Companies House register.

Currently there is no requirement for a director or person with significant control (PSC) of a UK registered limited company to verify their identity. This means that unscrupulous people can commit fraudulent acts using false identities.

The new legislation will mean that directors and PSCs will soon need to verify their identity with ID when setting up a new company. Eventually directors and PSCs of existing companies will also need to verify their identity. The number of directorship resignations and transfers of shareholdings this triggers remains to be seen.

We at Top Service Ltd hope that, in addition to cutting down on fraud, it will also help to ‘tidy up’ the register of directors at Companies House. Currently one person can have a number of different identities where they’ve used a slightly different name, a maiden name then married name, a different address, etc. Having every person on the register matched to one verified identity will be a welcome improvement.

More information available here: https://changestoukcompanylaw.campaign.gov.uk/identity-verification/

The Economic Crime and Corporate Transparency Act recently came into force.  This new legislation means that micro companies and small companies will need to file more in-depth financial information on the public register at Companies House.

If a company meets two of the following three criteria it is classed as a ‘micro company’; turnover less than £632k; balance sheet less than £316k; fewer than 10 employees.  Micro companies currently only need to file a very simple balance sheet and the number of employees.

If a company meets two of the following three criteria it is classed as a ‘small company’; turnover less than £10.2m; balance sheet less than £5.1m; fewer than 50 employees.  Small companies currently only need to file a simple balance sheet and the number of employees.

Going forwards, both micro and small companies will have to file information from their profit and loss account.  Small companies will also have to file a directors’ report.  The exact details of the new requirements have not yet been disclosed but it will almost certainly mean that turnover and profit / loss figures will need to be disclosed by all limited companies in the future.

More information available here: https://changestoukcompanylaw.campaign.gov.uk/changes-to-accounts/

The insolvency statistics for October 2023 were released on Tuesday 14th November 2023. Understanding company insolvency trends can be crucial for you and your business, below we delve into the data for October 2023 and breakdown the statistics into a useful Year on Year and Month on Month Comparison. 

Registered Company Insolvencies 

Year on Year Comparison 

In October 2023, insolvency rates increased by 18% compared to October 2022, totalling 2,315 cases. 

For October, there were 256 Compulsory Liquidations, 1889 Creditors Voluntary Liquidations (CVL’s), 146 Administrations and 23 Company Voluntary Arrangements (CVA’s). 

An increase is evident across all company insolvency routes when comparing October 2023 with October 2022, with a notable increase of 297 cases in Creditors Voluntary Liquidations. Additionally, Compulsory Liquidations increased by 6 cases, Administrations by 39 cases and Company Voluntary Arrangements by 39 cases. 

The breakdown of insolvency within the construction industry for October 2023 is yet to be released, however we can see a 7% increase in insolvency within the construction industry when comparing September 2023 with September 2022. 

A Month on Month View 

Insolvency rates for October 2023 increased by 346 cases (15%) when compared to the revised total for September 2023. Creditors Voluntary Liquidations appear to be the reason behind this 15% increase as they increased by 314 cases in October 2023.

In contrast to the September 2023 Insolvency Statistics (which can be found here) when comparing October 2023 to September 2023, the only insolvency method where a marginal decrease can be found is in Compulsory Liquidations which decreased by just 2 cases. Additionally, there was an increase of 21 cases in Administrations and an increase of 12 cases in Company Voluntary Arrangements. 

Concluding Remarks 

Insolvency cases for companies continue to rise within the construction sector and therefore due diligence is no longer an optional requirement but a necessary feature for any business. 

We recommend closely monitoring key supplier accounts and clients, seeking the assistance of a credit reference agency if you have not already done so and reviewing your credit management tools and processes carefully. 

We are proud to reveal that so far in 2023, we have collected £25 million for our members through our debt recovery service.. 

Increasing Reports of Overdue Balances 

Within the construction industry we have seen an increased number of reports from our members relating to overdue balances. These reports and the rising insolvency figures mean that now, it is imperative to carefully weigh up keeping an overdue balance in order to preserve a trading relationship and passing to a debt recovery agency to collect a balance. 

Our Approach to Debt Recovery

We approach debt recovery with professionalism, efficiency and empathy, this in combination with our collection team’s knowledge, experience (specifically for the construction industry) & access to effective tools, has resulted in significant collections made for our members. 

We understand that trading relationships can be delicate and the subject of debt recovery can be a sensitive topic, this is why our approach in collecting your overdue balance will change depending on your trading relationship. 

Every case passed to us is unique and this is why our teams are not scripted and will work with you to create a bespoke collection strategy suited to your case. 

Our standard debt recovery is no collection no fee, so if we are unsuccessful in collecting your overdue balance, there is no commission to be paid. 

If you would like to learn more about our debt recovery service, our Head of Business Operations Lauren Woolley explains the difference between our debt recovery and our pre-litigation services below.