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Funding the Future

World Cement,

It is no secret that the construction industry has been one of the worst hit sectors, bearing much of the brunt from the fall-out of the recession, and it has had a considerable knock-on effect on many sub-contractors, including those within the cement industry. In fact, when the Government announced at the beginning of the year that the UK economy fell by 0.5% in the final quarter of 2010, the construction industry was the biggest contributor.

The latest findings from professional services firm PwC report that some 5126 construction businesses have gone bust in the UK since 2009. This will come as no surprise to sub-contractors who know only too well the huge toll the downturn has had on related industries - hitting orders hard, severely denting revenues and squeezing margins.

While there are some positive signs that the situation is improving with the number of insolvencies in Q2 falling on the first quarter of 2011, it is clear the construction sector is still struggling and a full recovery is some way off.

The cement sector has also had to contend with the continuing problem of late payment. Recent National Specialist Contractors Council statistics reveal that only 4% of sub-contractors are getting paid within 30 days, a further 82% have to wait up to 60 days for payment and some 14% face payment periods of 60 days or more.

Against this volatile economic backdrop, many construction firms are struggling to access vital funding as they battle to maintain cash flow during these challenging times. According to industry observers, many banks have become more risk adverse to small business loans, with outright rejection rates rocketing sevenfold since before the start of the financial crisis.

Banks have also been turning away more businesses seeking overdrafts. In fact, only 72% of overdrafts were approved on the initial approach last year, compared with 90% in 2007.

Fortunately, an increasing number of construction firms are realising the benefits of obtaining alternative sources of funding and are turning to independent specialist finance providers such as Bibby Financial Services to access much-needed cash flow. Bibby Financial Services is the only invoice finance provider with a specialist construction finance offering as well as a dedicated team to provide innovative and flexible finance solutions to sub-contractors.

The company has seen an increase of nearly 30% in funding to the construction sector in the first six months of 2011, compared to the same period in 2010, financing a record number of companies to release funds tied up in unpaid invoices and applications for payment, helping businesses to fulfill contracts and invest in growth.

Bibby Financial Services’ construction finance offering is available to sub-contractors that operate under most forms of construction industry contracts seeking a funding requirement up to £5 million. Features of the bespoke construction finance package include:

  • The provision of immediate and sustained confidential funding against outstanding billing and uncertified applications for payment under contract – all on a confidential basis.
  • Demonstrable expertise in structuring funding facilities for contractors across the construction trade sectors.
  • Access to a team of specialist credit controllers dedicated to managing and collecting outstanding contract debts.
  • Specialist bad debt protection against both existing billing and applications for payment.
  • Quantity surveyor support.
  • Significant experience in the construction sector, helping business owners manage their working capital requirements and realise growth ambitions.

Jason Heath, construction finance expert at Bibby Financial Services, says: “Firms working in construction and associated trades are used to tightly managing cash flow due to the need to buy large amounts of raw materials upfront, before they start working on projects, and often have to contend with stage payments, resulting in frequent cash flow bottlenecks.

“As a result, more and more businesses are starting to shop around for appropriate solutions to their funding requirements and are seeking alternative methods for accessing essential cash flow. Construction finance is a natural choice for sub-contractor firms, providing a flexible solution that grows in line with their needs.”

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