The average trade debt among construction SMEs in the UK is close to the £500,000 mark – and is proportionally higher among some of the smallest firms, according to figures published by Debt Guard Solicitors.
In analysis of 550 real-world submissions of accounts to Companies House by construction firms, the specialist solicitors found the overall average trade debt was £484,000.
This represents the amount owed to the company by its debtors, including outstanding and overdue invoices, and is among the most direct drains on company cash flow at any given time.
Firms with the fewest employees – fewer than ten – and annual turnover of less than £2 million had proportional trade debt of around 14%, or £41,000.
But this spiked to 16%, the highest in the survey, for companies just slightly bigger with 10-49 employees and £2-10m turnover, with an average trade debt of £627,000.
Above £10 million and 50 employees, the proportional picture improved once again, and firms in this category face typical trade debts of £969,000 which, while much higher, is just 13% of their turnover.
Debt Guard Solicitors suggest that the figures show that “despite the economic upturn, the strain on the sector’s smallest firms remains severe”.
Indeed, it is not just the percentage trade debt that is significant; smaller firms are also much less likely to have in-house credit control teams, or clear procedures for chasing unpaid and overdue invoices.
As a result, even a relatively low rate of non-payment can have an adverse impact on their cash flow, as they may be less likely to recoup the unpaid funds without seeking professional outsourced assistance with credit control.