Bad Debts – Clients

Without Prejudice – A Piece of Advice – Not to Get Into Problems

The following post is written without prejudice in its entirety and provided to share true experiences and how to avoid getting into difficult situations. Basically, food for thought! 

Construction Services Management Limited is a specialist contractor, providing complete ground works and sub structure solutions.  Our works include all types of foundations, drainage, basement construction, reinforced concrete walls and associated works. 

The extent of our works is growing at a steady pace and are now looking to diversify into other areas of work.  However with growth, problems come along and if not managed properly, may mean the demise of your company and eventually the end of your hard-earned efforts. 

The problem does not lie with the nature of the works since these should be within your grasp and competency.  The problem is with clients, over the last two years I have encountered clients that have not paid the sums contracted.  As a contractor we work on a very flexible basis and try our best to accommodate our work in line with the clients’ cashflow. 

This process works fine at the beginning and middle of the contract, however towards the end of the contract just when the final payment is due the client suddenly has difficulty and starts to find excuses not to pay the final sum.  At this point what do you do!  

Over the last three years we have as a result of non-payment lost over £60,000 – this has impacted the growth of the business and also hardship to others in your suppliers’ chain. 

It makes me wonder why does this happen and having these experiences I have become a lot better tuned in calculating which clients will cause you problems.  As a result, I have developed rules which, only means stereotyping, although it is wrong to stereotype and I say this without prejudice, it is the only way that you can protect your income, your workforce and suppliers.  My experiences have taught me identify the traits of people, in terms of how they come across and those people who are very friendly, smooth and smarmy are the ones that will definitely shaft you. 

I have looked in to this lot more and recently without prejudice a client of mine has refused to pay my final balance.  Each time I chased for payment he would give you the run around, smoothly pleading cashflow problems and sometime would indicate that his son will make payment and then the run around process starts again.  Apparently he has problems in not wanting to make payments. Doing a quick search on the internet by putting their name in Google I was surprised to see the results. This was also true, without prejudice of another client, Mandeep Singh of Evergreen Way, Hayes, Amir Choudhary of Sydenham Road, Croydon, Lampco of Perivale, these guys were wound up purportedly not paying an electrician his invoices totalling £250,000 and similarly Freemont Ltd.  Mandeep Singh, upon investigating him appears to have no real identity, his name does not appear on any company papers and the property he lives in appears to be in someone else’s name. 

Upon further investigation, it was found that other people also had problems with these clients. 

The quality of work in the above example was not in question and not a reason for non-payment.  All reasons relate to “shortage of cash.” 

When working for a main contractor the problems arise when the main contractor does not make payment on time and as works progress you learn that the main contractor has problems elsewhere, where he is using the current job funding to subsidise other works. 

It is difficult to pursue any claims in court and the court process is also expensive.  Therefore, you can be in a situation that becomes throwing good money after bad. 

The reasons why these people have these cashflow problems appear to be down to their loan applications.  One of the major providers of developer loans is Aldermore, NatWest Bank, Punjab National Bank and other specialist development finance providers.  Lot of these banks lend up to 60% of the construction costs with the remainder being made up by the client’s own contributions.   

It is these contributions that cause the problems and since the client does not want to spend their own money he tries to get around this by trying to get the main contract works done below realistic values.  This is further compounded by low levels of borrowing from the bank to ensure that their loan is approved. 

Knowing that this happens and to avoid problems, I try to obtain much information as possible from new clients about their estimated project costs and if it appears that they are unrealistic. I now make a conscious decision to walk away from clients. Also, I do not fall for their smoothness and sincerity since this is just a facade that will snare you into ruin. 

Like I mentioned right at the beginning, this post in its entirety is written without prejudice and is offered as an advice piece and hope that it would help you avoid getting into difficulties with unscrupulous clients. 

Written by Construction Services Management Limited