Impact of Carillion collapse highlights need for payment change

Construction giant Carillion's plunge into liquidation has had an immediate impact, with the firm owing up to 30,000 businesses around £1bn in unpaid costs, as well as putting thousands of jobs at risk.

What is clear from the collapse of such a seemingly untouchable giant such as Carillion is that there is a wider review needed for the way the industry is operating under its current business model. As part of that, the traditionally long and uncertain payment terms facing many construction subcontractors needs to be reviewed.

The payment processes in place across many businesses within the industry are still manual and complex. Changes are needed to modernise and protect the sector against the impact of cases such as the Carillion collapse.

Current reports state that Carillion owed money to between 25,000 and 30,000 businesses, some of which had bills which were equivalent to 10% of their turnover. The knock-on effect for subcontractors and the industry as a whole could be catastrophic.

“Looking at previous cases where large contractors have collapsed, you typically see that around 17% or 18% of businesses who are creditors to the company don't make it through the next five years”, states Suzannah Nichol, chief executive of trade body Build UK.

It's clear that steps are needed to improve cash flow between contractors and subcontractors – for the benefit of all. Automated payment processing systems are shifting from “nice to have” to an essential item for businesses to remain viable.

For contractors, they benefit from increased efficiencies and a much more accurate understanding of their liabilities at any given time. For subcontractors, they gain visibility of the progress of their various applications for payment – something that will help them with their business planning.

With the right technology, payment processes can become efficient, standardised, transparent and quick. Most importantly, the automation of these processes can allow for tracking and management across the whole supply chain which reduces risk and helps to build a clear and transparent picture of the finances affecting the business. Such disruptive technologies means the industry is facing a future of dramatic change.

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