the collapse of carillion, a warning to all smes
January 26, 2018
The tragic collapse of Carillion was, it seems, a disaster waiting to happen, with no shortage of pundits lining up to confirm that they saw it coming and that the warning signs were there for all to see.
But what about the thousands (up to 30,000) smaller companies which didn’t see the writing on the wall, who don’t spend their time poring over Annual Reports, and which may now find themselves going to the wall along with Carillion? How do SMEs protect themselves against the unthinkable – that a major UK company with multiple £billion on-going contracts, may topple over and drag them down as well.
There is no shortage of well-intentioned advice aimed at helping SMEs avoid their biggest nightmare, being starved of payments while being offered more work only to find that they are in so deep, they cannot pull out of the downward plunge into bankruptcy.
According to Luisa Grey a Director with Direct Debit processing company, Eazipay Ltd, there is no single magic bullet to being paid on time, but there is one simple technique that will sound alarm bells if your customer is running into cash flow problems: insist that your invoices are paid by Direct Debit.
“There are only two ways that a Direct Debit can fail, either because there are insufficient funds available to pay the invoice or because the customer has cancelled the Direct Debit.
“If either of these situations occur, the company claiming the money will have an early warning that something is seriously awry and can take remedial action to prevent the losses mounting up to the point where they face insolvency.
“The problem for too many SMEs is that the desire to have continuity of work overrides the need to be paid on-time and unpaid invoices are allowed to pile-up. If a Direct Debit fails, then a company’s maximum exposure is one invoice, not multiple invoices.
“The demise of Carillion should send shock-waves through the entire SME sector and is a clarion call to all SMEs to re-examine just how robust their payment processes are and take all the necessary steps to protect not only their businesses, but the livelihood of their employees.
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Damion Clark at Real PR (Consultants) LLP. Tel: 01353 667934 or 07789 911314 Email: firstname.lastname@example.org