eNews May 17, 2018

Late Payments Cause UK Construction Companies to Falter

The probability of bankruptcies and liquidations among United Kingdom construction companies has skyrocketed since 2017, particularly after the collapse of construction giant Carillion at the beginning of this year. When Carillion announced its plans to liquidate in January, news outlets reported most secured creditors would likely get paid, while small- and medium-sized enterprises could be left hung out to dry.

On May 8, payment rating service The Prompt Payment Directory (PPD) released its commissioned research survey results garnered from 400 owners and CEOs, which found the majority of small construction businesses in the U.K. are at risk because of late payments. Voluntary prompt payment efforts, such as the “Prompt Payment Code” and “Duty to Report,” were put in place to protect small construction businesses but have shown little success.

The Prompt Payment Code was created in 2015 and supported by the government, according to the U.K. Federation of Small Businesses, as corporations pledged to pay their suppliers on time—the recommended payment timeline is within 45 days. The Department of Business, Energy and Industrial Strategy’s Duty to Report is the latest initiative, established in October 2017, and requires businesses with specific turnovers to “prepare and publish information about their payment practices in relation to qualifying contracts.”

Participants in the PPD survey were asked about their chances of bankruptcy or liquidation linked to late payments, with nearly 75% saying they were either “on the brink” of bankruptcy or liquidation “or could be soon.” Cashflow, or the lack thereof, was a culprit behind these latest results, up 30% from 2017. Borrowers’ excuses for late payments included waiting for customers to pay borrowers’ overdue invoices (32%), accounts representatives to return to the business (23%) or business turnover to improve (17%).

“Recent high-profile cases, such as Carillion, have made many more people aware of the cost of late or nonpayment and how it can affect smaller construction firms, but in reality, this has been going on for years,” said Hugh Gage, managing director of PPD. “Construction business owners need to arm themselves against some of the most common late payment issues and fight back against these poor practices, as it’s always best to try and avoid them from the outset by using due diligence through credit reference agencies, or services.”

Chris Ring, of NACM’s Secured Transaction Services (STS), noted there are plenty of reasons construction companies start to falter, one being poor financial infrastructure. While larger contractors, like Carillion, have to file for bankruptcy, smaller contractors might just walk away from their business and “disappear.”

Construction companies need to understand that sometimes the money is there, but it will take longer to get paid; therefore, they can’t rely solely on payments that can come late.

“There could also be a weather delay, which could force that job account to postpone payment to all of the parties. You just don’t know when that’s going to be,” Ring said. “If you’re in regular construction, you don’t know what’s going to cause that delay and you have to account for it.”

Chris Ring, NACM Secured Transaction Services, and Bruce Nathan, Esq., Lowenstein Sandler LLP, will discuss construction bankruptcy during their presentation, “Navigating Lien and Trust Fund Rights When a Party in the Construction Supply Chain Files Bankruptcy,” at this year’s Credit Congress, June 10–13, in Phoenix, Arizona. The panel is from 2–3:15pm Monday, June 11.

—Andrew Michaels, editorial associate

Credit Congress—The Time to Register is NOW

Hotel Deadline is fast approaching!

There's still time to take in the urban energy and desert vistas of Phoenix as NACM hosts its 122nd Credit Congress & Expo, June 10-13, 2018. More importantly, Credit Congress offers more than 60 compelling and relevant educational sessions, ranging from the fundamentals to more sophisticated and challenging subjects. Our breakout sessions present topics in the following areas:

• Business and technical skills
• Credit management: Core concepts to best practices, industry trends and practitioner experiences
• Credit and technology
• Financial analysis
• International tracts: Global challenges, etiquette protocol and country-specific approaches
• Leadership and management
• Legal environment of business credit and more!

Tailor a conference agenda based on your experience, interests and goals that affords the greatest return to you and your organization. It's an unparalleled educational and networking opportunity for any credit and finance professional!

Leadership, Networking Drive Small Business Innovation

Business owners are constantly adapting to their surroundings by coming up with new and interesting ways to attract more customers and keep their businesses relevant. When owners hear the term “innovation,” the minds of many immediately jump to technological advancements, such as artificial intelligence, with the goal of speeding up menial tasks, cutting company costs and/or enhancing customer experiences. In reality, BMO Wealth Management (BMO) service found that in order to innovate, all businesses really need is leadership, a solid support network and the desire to improve.

The financial services provider explored innovation through the eyes of U.S. small businesses, which a recent study concluded are fearful of the cost implications behind innovation. BMO’s Creating Wealth Through Business Improvements survey, released May 7, sought input from more than 1,000 small businesses, including those run by Baby Boomers, Generation Xers and Millennials.

Nearly 70% of respondents said meeting customers’ demands and needs drove innovation, with the Boomers taking the lead at 77%. The second- and third-highest reasons were maintaining growth and sustainability and creating a better product or service, respectively, while implementing new technology topped off at 37% of all respondents.

“Innovation is different from invention and does not necessarily depend on technology,” the study stated. Management Consultant and Author Peter Drucker’s 1985 definition of innovation was referenced in the report, specifically how it predated the renowned technology that is used today. “Sometimes, simple, low-tech innovations can help to keep things ‘fresh’ for customers, employees and the business.”

BMO defined innovation as “the execution of an idea which addresses a specific challenge and achieves value for both the company and customer.” It’s all about knowing what resources are at the company’s disposal, some of which are financial support systems. If incoming cash flow isn’t a viable option to jumpstart innovation in the workplace, businesses can seek funding through business-to-business credit and/or government grants.

Survey results found 60% of respondents have never applied for capital or funding, the most common fear being incurring debt (36%). However, the number of respondents who applied and were approved outperformed those who were declined, while 21% said they found the application process “too complicated.” Overall, 66% said they believed their access to funding would make or break their innovation success, but BMO stated funding is merely one of many paths available.

“Joining a business group, finding a mentor and surrounding yourself with similar business professionals can provide both short- and long-term benefits to help innovate and grow,” the study noted. “Innovation works best when business owners with different opinions and different backgrounds collaborate. It is better to be challenged because surrounding yourself with like-thinking individuals can sometimes stifle innovation.”

These opportunities lie at the fingertips of NACM and FCIB members, who can learn from their fellow credit managers by participating in local or regional industry credit groups. NACM Affiliates and FCIB, NACM’s international subsidiary, sponsor and operate more than 750 industry credit groups, offering networking opportunities, credit information exchanges and forums to discuss the latest developments in credit.

Credit groups allow credit professionals to gather together to talk credit, while also gaining insight into certain happenings, such as innovation. Simply visit the NACM website to find the industry credit group nearest you or contact your local Affiliate.

—Andrew Michaels, editorial associate

Fall Online Courses 

A more convenient alternative to the traditional classroom, our online independent study courses offer you the flexibility to choose the most opportune times to study and take exams, be it morning or evening, weekday or weekend. However, they still offer a full network of support. Our facilitators are accessible through email to answer questions, provide guidance and help students prepare for the online exams.

Our priority is to provide students with the best education we possibly can. For this reason, our classes are intensive, college-level courses. Due to the independent nature of our courses presented online, students should be highly self-motivated with the ability to learn from a nontraditional presentation medium. 

Choose from these courses:

• Accounting
• Business Law
• Credit Law
• International Credit & Risk Management

Expand your knowledge, increase your productivity with online educational courses.

Be Ready to Lien If Payments Break Down

A southern Texas contractor and owner are in a payment dispute over a paving project at a business plaza’s parking lot. According to KRGV Channel 5 News, the contractor quoted the owner $37,000 for the work and has a hand-written agreement. The owner told the news outlet she has paid the contractor $22,000 and does not owe any money.

Payment disputes in the construction industry are common and can often lead to unwanted outcomes, such as nonpayment and bankruptcy. These payment problems can arise from many different scenarios. In this case, the owner claims she is not satisfied with the work provided by the contractor. Another reason for the dispute is the lack of a firm contract between owner and contractor. These situations can be found at every level in a construction project and between multiple parties involved.

Items to consider include:

• Having a contract and knowing the details of it.
• Understanding the payment process.
• Knowing what to do when that process breaks down—i.e., are there legal actions to consider?
• Keeping the project relationship strictly business, which was not done during this situation.

As a material supplier or someone further down the chain on a construction project, it is important to learn from previous mistakes—especially if they are someone else’s—which can better prepare you for the next job. According to KRGV, the contractor said his relationship with the owner started great but soon broke down, while the owner said business and friendships should be kept separate.

The back and forth between this contractor and owner can be traced to the lack of a formal, contractual agreement for the work and payment. As a trade creditor or supplier, this is critical. It boils down to job information. Find out about your customer; understand how and when you will be paid for the material. Having a completed contract in place will help suppliers further down the line if the payment process deteriorates.

Texas’ lien law can be tricky for those looking to secure payment. On the private commercial side, parties direct to the prime contractor must serve a notice to the owner and contractor by the 15th day of the third calendar month following each month in which materials were supplied. For example, a notice to owner served by April 15 would be for work in January.

However, if selling to a subcontractor, a notice must be served to the contractor no later than the 15th day of the second month following each month of furnishing. Therefore, work in January requires a notice by March 15. A third-month notice to the owner and contractor is also required for those selling to a subcontractor.

Lien deadlines follow a similar 15th-day-of-the-month formula. In the south Texas case, the contractor had to record the lien by the 15th day of the fourth month after materials or services were furnished since he was direct to the owner.

-Michael Miller, managing editor

Reclaim Your Valuable Time and Resources—Let Us Do the Work

Managed by construction credit professionals, NACM’s Secured Transaction Services (STS) answers your most technical questions, takes pride in handling your projects and triple checks all work for accuracy. After all, we know how important each job is to your company.

We have you covered with:

• Notice to owners
• Attorney network mechanic's lien filing service
• Foreclosure or bond suit actions with the attorney who filed your lien
• UCC equipment and inventory filing services
• Demand letters
• Tracking service and more

Let the experts help you navigate the Lien and Bonds process.

Western European Outlook Stable

The overall outlook of Western Europe remains solid, but the United Kingdom’s forthcoming exit from the European Union could leave others and itself grasping for economic stability. In its latest report, credit insurer Atradius reviewed a dozen Western European markets, grading their industry credit risks as well as real gross domestic product growth and insolvency forecasts.

Atradius measured industry credit risk performance on a scale of bleak to excellent, with poor, fair and good in between. Many credit risks fell between the good to poor rating; however, there were several that stood out with excellent outlooks. Those included Austria’s financial services; Belgian, French and German chemicals/pharma; Italy’s machines/engineering; and the Dutch food industries.

The overall credit risk outlook in the U.K. is not as positive, mainly in the fair category with spots of poor and good mixed in. British GDP growth is predicted to dip slightly in 2018 and remain at 1.7% year-over-year change in 2019. However, this can change due to Brexit, noted Atradius. The referendum to leave the EU has caused an avalanche, with inflation skyrocketing and business investment growth taking a step back.

The U.K.’s decision will have lasting impacts on surrounding markets as well. Belgium, Denmark, France, Germany, Ireland, Italy, the Netherlands, Spain and Switzerland all had the U.K. as one of their top five export markets by percent in 2016, according to the report. Only Austria and Sweden did not.

In Austria, real GDP growth is expected to decline this year and next by more than a percent. Belgium is also predicted to have a slight drop-off in 2019, as is the rest of the region. Meanwhile, Denmark, France and Sweden are forecasted to show GDP growth this year compared to 2017.

Insolvency outlooks are mainly favorable as well in Western Europe. Austria, Germany, Spain and Switzerland are each predicted to have insolvencies decline by 6% in 2018. Meanwhile, Italy is expected to have insolvencies drop by 10%. Only Denmark (under 2,400 insolvencies) and the U.K. (more than 15,000 insolvencies) are expected to have a year-over-year increase.

This positive outlook is mirrored in the latest FCIB International Credit & Collections Survey for the region (April 2018). In Germany, average days beyond terms decreased slightly, and members reported no increases in payment delays. Payment delays are decreasing in France as well. Meanwhile, in Italy and the U.K., a small percentage of respondents said payment delays are increasing compared to the previous survey. Payment term lengths are shortening in the U.K. but expanding in Italy, Germany and France.

-Michael Miller, managing editor

Educational Sessions for Global Credit Professionals—There's Still Time

June 10-13, 2018, Phoenix, AZ

Held in conjunction with NACM's Credit Congress, this is a must-attend event for anyone doing or planning to do business abroad. General, intermediate and advanced sessions are offered to benefit the experienced international trade credit professional as well as those just entering the global market and wishing to learn new skills.

International highlights:

Dig into Predictive Markers. Learn how analysts use readily available market data to predict corporate and sector failures. Find out how to use this info to manage counterparty risks for your company.

Get a Grasp on Technology. Hear firsthand from credit professionals how technology providers solved specific credit-related challenges.

Decipher International Financial Statements. Learn how to tackle financial statements from other countries to glean the most value.

Get Heard. Discover how to navigate cross-cultural communication challenges. Gather tips and techniques for communicating with customers and team members from other countries.

Establish a Network. Grow connections to other professionals who face similar issues and challenges. Build a strong network that strengthens every credit professional.