The construction industry is currently facing headwinds receiving a huge amount of airtime in the media of late with the collapse of many small to large residential builders. So, how does this affect you if your customer is a residential builder who has collapsed? More importantly, what should you do next to ensure you continue to meet your financial and operational obligations?
Dealing with planned work and unreceived deliveries
It can be daunting if your customer i.e., the building company owing you money collapses. However, in the instance that this occurs, it is crucial that you immediately stop any further work and deliveries, as the already complex problem does not need to become any bigger. You will also need to quickly determine whether any deliveries are in transit and have them returned to your depot immediately, as well as stopping all site deliveries if you have not done so already. This is where you rely on your PPSA registrations. Find out from the insolvency practitioner's office whether there are any materials which can be removed and returned to you. It is best to reduce your exposure where possible.
Understanding whether you can retrieve the materials you have already supplied to your customer
A key question you will most likely be asking is whether you can retrieve the materials you have already supplied to your customer and if you can simply go onsite and collect them. However, you must firstly ask yourself whether you are a secured creditor, i.e., have you registered your security interest on the Personal Property Securities Register? If yes, then the next step is to contact the insolvency practitioner and notify them of your claim and request that you ask for a stocktake of your goods supplied, provided that you can identify your goods easily. You can then submit a proof of debt to the insolvency practitioner and work with him/her to identify the next steps in the process.
However, if you answered no to being a secured creditor, any recovery of your debt will depend on whether there are any assets available by the building company and/or their owners to pay their creditors. There are many variables that affect a dividend payable to creditors.
Recast your cashflow for the short-term and plan accordingly
One of the most important questions to consider when your customer is going under and can’t pay your invoices is whether this customer is a major source of cashflow. If so, how does the non-payment of their debt affects your cashflow, which in turn affects your ability to pay your short-term expenses including paying you employees and suppliers. Therefore, in order to identify working capital gaps and funding gaps and plan accordingly, it is necessary that you conduct a cashflow forecast. This will allow you to determine whether you are able to stretch out payment terms with your suppliers and collect on your other customers quicker. However, most payments from customers are based on progress payments and may be made indirectly by the end customer’s bank. Therefore, this may be hard to bring forward.
Explore your options
If the collapse of your customer and/or your supplier is causing a strain on your cashflow, there are various options available to suit your specific needs. This ranges from raising finance and renegotiating terms with your suppliers, to other types of informal and formal restructures.
Questions?
Please do not hesitate to reach out and we will be happy to assist!
