Managing credit risk in the construction sector
What should we make of last week’s warning from Willmott Dixon that its margin in 2020 more than halved, and they’re seeing supply chain margins suffering a similar fate?
This is a sector that’s emerging from Covid-19 with a buzz, and a growing sense of optimism (if the CBI Business Optimism index is to be believed). It’s also a sector that serves as a barometer of the wider UK economy, contributing around 7% of the UK’s GDP and more than 2.4m UK jobs.
Here at The Channel Partnership we’re focused on the big picture, and it’s the supply chain that will be causing the construction sector more pain.
Willmott Dixon has said, “It was not possible to avoid COVID-19 impacting financial performance, and the task in 2021 is to repair that as much as possible.” But how much of that repair work is actually in their control?
If main contractors are seeing pressure on profit margins, they will squeeze their sub-contractors and try and protect what little cash is left in the coffers. We’ll especially see problems for those on fixed price contracts where materials are in short supply and prices are increasing. But there will be general pressure to negotiate tougher contracts, or failure to renew existing contracts.
We believe the primary risk of insolvency will be carried by second tier contractors and also suppliers into the construction sector. Corporate insolvency has been low, but will climb – and we could see a domino effect of insolvencies across the sector.
It’s vital that those business that have got through (what we hope is) the worst of Covid, don’t run the risk of uninsured debts damaging their future prospects.
Credit insurance for the construction sector is what we do, and it’s time to call us and run a health check across your supplier contracts. Please contact Tom Rolfe / Andrew Smith and we’ll share our sector expertise.
Tom Rolfe | firstname.lastname@example.org | 07889 659 339
Andrew Smith | email@example.com | 07932 567 900