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Construction industry sees major increase in contract renegotiation

According to new research by Creditsafe, 47% of companies leasing equipment to firms in the construction industry have seen customers attempt to renegotiate the terms of their original hire contracts in the last 12 months, up from 36% a year earlier.
However, many of these leasing companies are being hit by poor payment practices. Creditsafe's research found that 59% of firms have experienced an increase in late or defaulted payments from firms that hire construction equipment.

Creditsafe business development director, David Knowles, said: 'The construction industry continues to face difficult trading challenges. Renegotiation of fixed contracts makes financial forecasting extremely difficult in a sector of the construction industry where profits are only generated by leasing firms in the medium to long term after making an extensive capital outlay and taking on significant financial risk. Balance sheets of firms hiring construction equipment have taken significant hits from the combined impact of late payments and customers entering insolvency.'

He continued: 'It is crucial that companies take every step they can to protect themselves against the risk of defaulted payments. When dealing with customers who are on extended contracts, where monies are not paid up front, it is vital people continually check the ongoing financial health of customers. Companies can run into trouble extremely quickly, even if they filed healthy accounts in April they may find themselves in difficulties by June.'

According to Creditsafe, in the last 12 months alone, 65% of companies operating plant hire companies and leasing equipment to the construction industry have lost money as a result of customers becoming insolvent. Given the potential difficulties of extracting plant and construction equipment from third party owned and managed sites if a contractor goes bust, it is vital leasing firms continually monitor if customers can meet their ongoing financial obligations.



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22 August 2013

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