Construction Firms Face Credit Crunch Conundrom

Reports suggest the end of the recession is in sight, and according to new figures from Lovetts, the debt recovery law firm, it has pushed construction firms into speeding up their debt recovery processes. The figures show a decline by businesses in the amount of time they will tolerate waiting for payment, and it is clear that there is no longer a reticence to threaten legal action too promptly after the usual 90 day credit limit.

Compared to Q3 last year, construction firms are now chasing up debts with a Letter Before Action (LBA) an average of 19% sooner and legal claims are being issued a massive 40% quicker compared to Q3 2008. However, the most dramatic figure is the rise in value of debts owed - in the construction sector this has risen by 81% year on year.

Charles Wilson, Chairman and Managing Director of Lovetts commented: "By necessity, businesses are keeping a closer eye on their cash flow and changing their debt recovery processes to keep the cash coming in but this must also be balanced with the need to maintain good customer relationships. It's a really tough balancing act for many businesses - particularly SMEs who simply don't have the luxury of bank overdrafts to provide security when a customer fails to pay up.

"Whilst it's great to see these businesses are acting much sooner, the increase in amount of debt owed shows that further improvement is vital for business survival. It only takes one customer to pay a larger invoice a few months late to seriously affect a business' cash flow and put its future at risk. It's vital therefore that a robust debt recovery process is in place to help ensure 90 days doesn't become any longer - reaching the point at which recovery will inevitably be both protracted and expensive."