In the period since Carillion’s collapse, as inquiries into what happened continue, the government has stepped up the rhetoric around fair payment by launching two significant consultations and by publishing, for the first time, data on individual firms’ payment records. Meanwhile, two listed contractors – Kier and Galliford Try – have been forced into rights issues to raise money to fix their balance sheets, while a third, Interserve, has fallen into pre-pack administration following shareholders’ refusal to vote for the company’s latest rescue plan. 

What may not be immediately clear is how inextricably debt and fair payment are linked. Tony Williams, analyst at Building Value, says: “Pushing contractors to improve payment times is going to exacerbate an already very tender financial situation. If it happens, I don’t doubt there’ll be more bankruptcies as a result.” 

Why? The reason for his prediction is simple: cash. Contractors have traditionally delayed payment to suppliers because it increases the cash they have sitting in the bank. But if they’re forced to pay more quickly, the reverse happens – cash is sucked out of their businesses. And it is lack of cash that causes businesses to fail.