Don’t push your cashflow limits too far

Managing cashflow is one of the biggest challenges for construction businesses, with many actively delaying payments to suppliers for as long as they can and negotiating payment plans to extend its credit terms. While there is nothing wrong with that, it can lead to unforeseen troubles.

One of our clients, a medium sized company in the construction sector, always runs close to the limits with its cashflow and has never ran into a problem until they received a phone call from a Liquidator informing them that court proceedings had been instigated by one of their new suppliers (a large company) for a modest three-month-old balance that had not been paid. Our client’s first thought was that this was a hoax and asked the Liquidator to come in for a meeting and, after further discussions, they realized that this was all too real – their company was under a provisional liquidation. This meant that the Liquidator was in interim charge of the business until the directors could prove that their company was solvent, and they had already informed the bank and had their bank account frozen.

What followed was a frantic day of providing financial reports, including a short term cashflow projection to the Liquidator, until they were satisfied that the company was solvent. The Liquidator then signed a statement by the end of the day to take the company out of the provisional liquidation. This was all very scary for our client and stressed the importance of not ignoring letters/emails from suppliers.

The Liquidator said that large companies are using this tactic more frequently since the COVID restrictions have mainly been lifted. This was a very expensive lesson for our client, who had to pay the supplier in full and pay for the Liquidator and court costs.

Having contingencies in place to help navigate any bumps in the road, especially when it relates to finances, is important. By preparing regular basic cash flow projections, our EQ Property & Construction team can help you have a good and detailed understanding of these numbers.

If you would like to discuss further how we can support your construction business needs, email our EQ Property & Construction team at property@eqaccountants.co.uk or contact one of our offices.