I am in the midst of putting together data for the Contract Journal Construction Top 100 and there were a couple of figures I thought worth sharing that have come out of some analysis on trade debt and credit.
From the number crunching I am doing I have estimated that construction firms owe about £30 billion to their trade creditors and are owed about £23 billion from trade debtors.
I hasten to add that this is an estimate and I would appreciate any criticism or observations - my gut feeling, though, is that if the figures are wrong they underestimate the level of money owed to trade creditors.
Naturally the balance of trade debt and credit is not evenly spread. Big firms are more likely to be cash positive on the deal. Small firms almost inevitably will be "lending" money to their clients.
But the scale of the money we are talking about is huge and is a lot to be at risk if the industry is about to head into recession and - with the signs already there - more firms start going bust.
To give some background, with the credit crunch biting, it seemed appropriate to look at the scale of money owed by and to construction firms and how swiftly firms are paying each other.
So I am preparing an article on payment issues and for this I have been analysing data kindly provided by Corpfin, part of Experian. So a big thank you must go to the very helpful Marketa for her help in this.
Specifically, I am looking at the sums owed to trade creditors and owed by trade debtors within companies classified SIC Code 45 - that is to say construction firms. I have a sample of 3,000 active firms which have turnovers in excess of £500,000.
I have taken data from the 3,000 company accounts for three consecutive years, with the cut points being financial year ends up to March 2008, 2007, 2006.
The total turnover of these companies (excluding joint ventures and associates) is more than £74 billion, so it is fairly representative of the industry whose enterprises have a total turnover of £238,696 million. It's more than the £122 billion or so of industry output because of the level of inter-trading.
There may be a skew because the SIC Code 45 excludes some group company accounts. There is also a danger of duplication, but attention was paid to this, deduping as far as was practical.
Anyway - to the meat.
Comparing trade creditor figures against turnover for year 2007/2008 suggests that construction firms on average owe their trade creditors 12.2% of their turnover. The figure was similar if a fraction higher in previous years. Meanwhile the corresponding figure for trade debtors is 9.3%.
Now if we assume - a big ask maybe - that this pattern is representative of the industry as a whole we come up with:
- Money owed to trade creditors £30 billion
- Money owed by trade debtors £23 billion
That puts the industry £7 billion to the good, or put another way its supply base is £7 billion to the bad.
But I hasten to add that the analysis seems to suggest that on average - and this is rough and ready - if a firm has a turnover less than £40 million it is most likely to be out of pocket on trade transaction, whereas firms with sales greater than £40 million are more likely to be up on the deal.
So there are plenty more losers than winners in this game.