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In Focus Commercial Credit


Carillion’s demise: what lessons can we learn?


In the wake of the giant’s collapse, how should creditors be looking forward to a more secure future?


Angus Dent Chief executive, ArchOver


As the dust begins settling on the collapse of Carillion, we move to the damage-assessment phase – but question marks remain over the fate of at least 43,000 jobs. Over 30,000 small businesses are thought


to be owed money by the firm, and, although credit insurers have confirmed that they will pay out compensation totaling £30m, that only accounts for a small portion of the debt owed. Carillion had £1.5bn worth of outstanding


payments, a £2.6bn pension debt, and issued three profit warnings in just five months.


No surprise Clearly the firms’s failure was no surprise. All the warning signs were there. It made headlines because it is an important reminder that no company is too big to fail. It seems that the government has learnt its lesson from the banking crisis of 2008: saving organisations that are the root cause of system failures does not solve the problem. As the saying goes, hindsight is always


20-20. Carillion’s position was worse than the industry originally thought. There will be lots of pain in the short-term, but stronger, better-run companies will emerge. This is good news for those strong enough to survive in to the long-term.


Due diligence Instead of propping up the big boys after they have already collapsed, we need to put more emphasis on due diligence before the fact. Overall, 25% of bankruptcies are due


to unpaid invoices. In the construction industry, this figure is likely to be even higher. This is a sector that experiences the


March 2018 www.CCRMagazine.com 19


highest levels of insolvency per year, so SMEs need to be more mindful of the risks they are exposed to. Do not just rely on a big company’s


reputation for reassurance. Look at whether they have a good record of paying their debts. Do they have a strong cashflow? Have your peers had issues with invoicing them?


Consider what would happen if a client


were to default, and ensure that you have protection, such as credit insurance, in place. Carillion shows that credit insurance does


pay off when a big contractor goes bust – the payments to its suppliers will range from £5,000 to several million pounds – but not nearly enough companies took it out. When we trust too much in a company’s


longevity or size, then we are making an understandable, but risky, mistake. Investments and contracts can go bad,


Do not just rely on a big company’s reputation for reassurance. Look at whether they have a good record of paying their debts. Do they have a strong cashflow?


but that does not mean you cannot take steps to protect yourself. Just like Carillion did not have to accept tough contracts, SMEs should not accept contracts where there is a risk that they will not be paid, or where there are no measures in place to protect them against losses. Do your research, go only with sound


debtors, and put protection for your deals in place. CCR


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