Collecting money from debtors in the construction industry can be like playing snakes and ladders, says Claire Sandbrook. But there are ways to play the game to ensure you get to the top

In the construction industry, credit control really is like a ladder. Either you are the main contractor at the bottom holding the contract together, or you are the subbie somewhere above looking for payment.

Wherever your position, the fundamental rules of running a business apply: turnover is vanity, cash flow is sanity. Cash has to keep flowing, particularly on a construction project driven by industry-wide standard documentation, milestones, timelines for payment, and penalties for delay.

The key to avoiding a cash flow crisis is to ensure that financial information is available on a regular basis. Monthly management accounts that forecast the ebbs and flows of cash can go a long way to prevent trouble before a default is likely to occur.

Within these accounts, the income of a project should be plotted against the time constraints of payment terms. By taking this approach, money going out can be balanced against that expected in. The preparation of a weekly cash flow and forecast is vital to manage money and to ensure that any delay is managed immediately. If the alarm bell doesn’t ring or goes unheard, then the cash can run out in a matter of weeks.

So seek an agreement on a schedule for payments in advance of a contract, in order to reduce the risk of cash going out before it comes in. Staggering payment terms as part of the overall contract is essential, and understanding where a business is in the “ladder” of the contract will help to structure the deal so that all parties are paid as part of a well-managed project.

Having a plan to anticipate default is essential. Always work on the basis of worst-case scenario (your best customer going down owing you a sizeable debt) to benchmark your response. Here are five simple self-help steps:

• Put a plan in place to deal with serious default and ensure you review it.

• Make sure you understand your options in terms of litigation and insolvency proceedings for different types of customers. You may want to deal with one debtor more stringently than others – insolvency is aggressive, while litigation can offer a breathing space to agree new terms.

You may want to deal with one debtor more stringently than others – insolvency is aggressive, while litigation can offer a breathing space to agree new terms

• Have up-to-date information about your debtor’s businesses, whether they are a partnership or a company. You can find this out through the range of credit analyst tools available to flag up a business becoming a higher risk. Try a website such as Graydon Cashflow Solutions ( or Risk Disk (, both of which have systems that can help businesses monitor their debtors on a daily basis.

• Find out if your debtors have any assets that could be utilised if enforcement proceedings become necessary. Do not rely on the fact that the directors drive posh cars! If you decide to sue a company, make sure you know where it keeps its assets – usually not at its registered office, and certainly not at the director’s private house. You need to know where they trade from, where they keep their stock and if they have a yard, vehicles or freehold premises. Find out if the bank has a fixed or floating charge over these assets and where you would stand if your debtor company was wound up by another creditor.

• If you really want to ensure that the directors of your debtor company are personally liable, ask the director to sign a personal guarantee at the outset of the contract. For well-established companies that is pretty unrealistic, but for a new company with an unproven track record on payment, why take all the risk?

And if you have to take court action, don’t forget that you can use the power of the High Court for any sum over £15,000 and seek an immediate application for summary judgment. If that doesn’t result in payment, obtain your judgment and issue a High Court writ of fi fa – this is an execution warrant, which enables you to send in High Court enforcement officers to seize goods.

Alternatively, you could petition for winding up, although it’s a risky strategy.

If the court finds there was a valid defence to the money claim then it could lead to a costs order being made against yourself. Essentially, the strategy is not to actually wind up, it’s about the threat of winding up and the debtor company avoiding the advertising of the petition.

Remember, business is a game of snakes and ladders and there are plenty of snakes out there who can send you back to the start of the game if you don’t take decisive action. Have a plan to handle the snakes and make sure you get to climb plenty of ladders.