Small engineering firms reveal supply chain finance concerns

More than half of engineering services firms have said significant levels of their turnover are locked higher up the supply chain, new research shows.

The BESA (Building Engineering Services Association), ECA (Electrical Contractors’ Association) and SELECT (Electrical contracting in Scotland) found that 56% of firms had finance held by suppliers that was outstanding.

Focused on the third quarter of 2017, the survey revealed that one in three businesses had between 3% and 10% of their turnover held in retentions while a further 22% said between 1% and 2% of turnover was held in similar circumstances.

Five businesses even reported that 11% or more of their turnover was held in retentions by clients or main contractors, with one of those five saying more than 20% of turnover was not in their hands.

This causes a number of issues for smaller construction firms and suppliers, as they are unable to invest in training or equipment, can struggle to improve productivity and are at risk from insolvency higher up the supply chain.

The restrictions on cash flow can also make it difficult to take on more work, especially if funding is tied up in labour and materials.

BESA Deputy CEO Bruce Kirton said that late payment “continues to threaten the very existence” of many small construction firms.

He called for government action to ensure that “retention monies are protected and used for the purpose for which they are intended”.

SELECT Managing Director Newell McGuiness added that retentions “remain a blight on the construction industry” and warned that many are being held for longer than is needed.

All three trade bodies have called for funds to be held in trust at the earliest opportunity in order to provide a degree of protection to smaller firms.

For those with concerns over their financial position, options reviews can help to assess performance and highlight options that may be available.

More than 80% of firms said their turnover had stayed level during the third quarter, compared to the three month period before it.

By Phil Smith


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