2018 has not been a good year in the construction industry. An unexpected decline in housebuilding led to the construction industry to contract for the ninth month in a row, while the collapse of industry giant Carillion left thousands of subcontractors out of pocket. Construction output also fell by the 3.9 percent on figures for 2017, representing the biggest annual decline since 2013.
This is particularly bad news for roofers, plasterers and plumbers, not only due to the reduction in the available work, but also because in a competitive market, contractors can take advantage of the vulnerable position tradespeople are in by paying them late, or even trying to avoid paying them at all.
In this type of economic landscape, it’s essential that plumbers keep a closer eye on their finances than ever. But what can plumbers do to protect their businesses and avoid insolvency?
Improve your cash-flow position
Maintaining a healthy level of cash-flow is one of the biggest challenges plumbers face. It is not uncommon for large contractors to pay subcontractors after 90 or even 120 days. During this time, if you do not have the working capital to pay suppliers and employees or buy raw materials, you will not be able to operate your plumbing business effectively.
There are a number of strategies you can use to improve your cash-flow position. That includes:
Invoicing your customers regularly
Invoicing is no one’s idea of a good time, particularly when it spills over into the evenings and weekends. However, invoicing as soon as jobs are complete and negotiating regular payments from customers with long-term contracts will help to keep the cash trickling in.
Chasing debts
Late payers are the bane of the business owner’s life. Even if you know a payment will be made eventually, all that chasing can take time. You also risk running out of cash while waiting for the payment to be made. It’s important to set a precedent so your clients know that any late payment will be challenged. You can also charge interest on late payments to give your clients the extra encouragement they need.
Avoiding overtrading
Turning work down might not sound like a sure fire way to avoid insolvency, but taking on too much work is a common mistake tradespeople make. With plenty of money leaving the business to cover the cost of raw materials, travel and labour, you might find yourself without the resources or cash to cope.
Pay your debts when they’re due
You should always avoid the temptation to become a late payer yourself. Not only are the constant phone calls and threats of legal action not worth it, but if you owe a creditor more than £750, they can issue a winding-up petition to force your business into liquidation.
If you are unable to make a payment then contact the creditor immediately to explain your situation and propose a payment plan you’ll be able to meet. Most creditors would be willing to negotiate payment terms rather than risk missing out on a payment altogether if your business is wound up.
Explore alternative finance types
If you are experiencing a temporary shortfall of working capital then there are sources of finance out there that could provide the quick cash injection you need. Overdrafts and business credit cards are traditional sources of credit, but asset finance and invoice finance arrangements could also be a quick and effective way to boost liquidity.
Make an HMRC Time to Pay arrangement
If you are struggling to pay your VAT, PAYE, income tax or corporation tax liabilities then it’s a sign that your business could be insolvent. HMRC is one of the worst creditors you can have because of the range of collection powers it has. It can also apply penalties and charges to late payments which will increase the debt further.
However, it is possible to make a Time to Pay arrangement with HMRC to spread the cost of your tax arrears over a specified time period, typically 12 months. This could give you the breathing space you need to better manage your business’s finances and avoid an insolvency situation.
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