Warning signs of financial difficulty in construction firms
Signals that a contractor or subcontractor should act on early, and sensible first steps.
Short answer: In construction, financial difficulty often starts at project level before it shows in the annual accounts. Recurring cash shortfalls, growing overdue payables, disputed claims and loss-making projects are signs to act on early, while more options are still available.
Warning signs to watch
- Paying suppliers late to fund payroll, or the reverse, as a regular pattern
- Overdue statutory payments, such as CPF contributions, GST or income tax
- Progress claims consistently certified below the amounts claimed, or paid late
- Retention sums making up a large share of receivables with no clear release dates
- Unagreed variations building up on one or more projects
- Tendering at thin margins to keep cash coming in
- Relying on new project advances to finish older projects
- Letters of demand or statutory demands from creditors
Practical first steps
- Build a 13-week cash flow forecast by project, using realistic payment dates.
- List all creditors and debtors, including disputed amounts, retention and guarantees.
- Review each project's cost to complete against the remaining contract value.
- Protect your claims: follow the procedures and timelines under your contracts and the Building and Construction Industry Security of Payment Act, and obtain legal advice where needed.
- Talk to advisers early. Directors have duties that change as a company approaches insolvency, so legal advice should be obtained promptly.
Formal processes
If informal measures are not enough, formal processes under the Insolvency, Restructuring and Dissolution Act 2018 may be considered. These involve lawyers and licensed insolvency practitioners. An early, organised picture of the company's position makes those discussions more productive.
Official sources
Related pages
This article is general information based on requirements as understood at the date of review. Rules change, and individual circumstances differ. It is not legal, tax or accounting advice. Please check the official sources or contact us about your situation.
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