Up to 1,000 construction companies could needlessly go bust in 2003 and a further 1,000 in 2004 unless they overhaul their approach to credit insurance and cashflow management, according to a report by credit management company Gerling NCM. Analysis of the highest profile failures by Gerling NCM’s economists revealed that almost a third of the 2,334 construction firms that failed in 2002, went into receivership because of cashflow problems or the impact of a major bad debt. According to Tony Garner, Gerling NCM’s Trade Sector Development Manager, all parts of the construction industry are vulnerable to failure: ‘The industrial and commercial building sector is either stagnant or oversupplied. Construction companies operating in this space are focusing on winning jobs – almost at any price. As a result their margins are incredibly tight, leaving no financial headroom if a customer fails. If you operate on a margin of 10 per cent, and a customer goes bust owing you £100,000, you need to complete a £1 million contract just to make up the loss. That’s why we have seen bad debts take out even the major players.’
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