The liquidation of construction giant Carillion has sent shockwaves across the business community. For many it appears to have come out of the blue. But, as hlw Keeble Hawson debt recovery manager Charise Marsden explains, some of the common signs of a business in trouble were visible to the expert eye.
“Carillion’s collapse has hit the headlines around the world, with commentators expressing shock at the demise of a business that was considered ‘too big to fail’.
Some of the classic warning signs are already coming to light, with reports that Carillion were taking up to 120 days to pay suppliers. With 30 days usually being the standard and payment terms of 60 and 90 days considered special exceptions, this should have set alarm bells ringing.
Another red flag should have been that some firms in the supply chain have been quoted as saying that their invoices were routinely being questioned on the grounds of the quality of the work or goods provided.
These are classic hints that a company might be in trouble – and that the unwanted side effects could be heading your way in the form of cash flow problems within your own business.
As a debt recovery specialist who has seen the effects of insolvency first hand, I would always recommend rigorous checks of every new customer. These should, at the very least, include checking their name and legal status, carrying out credit checks and demanding references from their existing suppliers. You might also want to look at their historic trading and payment patterns to establish potential problems in their own supply chain.
Alarms should sound if there are sudden unjustified complaints about your goods or services, or if you receive a multitude of invoice queries. As looks likely in the case of Carillion, this can often be an excuse to buy time.
It also pays to keep on top of industry trends and developments so that you can spot issues on the horizon before they start to impact on your bottom line.
If you do get into a situation where the difficulties of a client are affecting your profitability or even potentially threatening your own solvency, it is vital to get the right advice as early as you can.
Souring a relationship that you might need further down the line is rarely the best tactic, and publicly embarrassing someone in your sector could ultimately reflect badly on you in the eyes of future customers. Court action can be expensive and has the potential to damage your own reputation as well as those you are taking action against.
Much of the time, the difference between resolution and rancor when it comes to money owed is effective communication. Professionals will examine the options with the debtor, seeking to find a discreet solution on your behalf, without the need for costly court action.
Of course, there will be times when negotiation alone can’t break the impasse, and that’s when you need your advisors on hand to help you weigh up your options.
As well as guiding you to keep scrupulous records of all transactions and correspondence – something that will be crucial if you end up in court – they can, for example, help you work out whether writing off a debt would ultimately by more expensive than the cost of recovering it via the courts.
Legal action should always be a last resort for resolving an outstanding debt and it’s important to understand that even if you are successful you might be behind other creditors in the queue.
However, if you carry out effective due diligence and get the right professional advice, you can reduce the chances of getting into difficulties.”