29th November 2018

Mitigating the risk of Contractor Insolvency

On Thursday 29th November personal and commercial law specialists, Cripps and barristers specialising in construction and insurance law, Hardwicke, held their annual construction seminar which focused on insolvency from the employer’s perspective. With the failure of Carillion still a hot industry topic, many employers are keen to know what went wrong and the measures they can take to prevent, mitigate or manage situations of contractor insolvency.

  Photo by @sagesolar

Around London and other UK cities there are a vast number of ongoing construction projects. However, in today’s economic environment, contractor insolvencies are on the rise. Combined with a decrease in bank lending, a devalued currency, increased supply costs and fears of Brexit related shortages of materials and specialist labour, the market conditions are very tough.

Precautionary Measures

From the point of view of the employer, Cripps highlighted the precautionary measures that should be taken on any construction project, especially in the current economic climate.

Firstly, ahead of appointing a contractor an employer should carry out financial due diligence on the contractor to establish their financial strength and capability. This could include credit checks using a credit status agency, viewing accounts filed at Companies House and assessing historical records. Although not fool proof, this due diligence can provide a valuable insight into the credit worthiness of a contractor.

Performance Bonds

One of the most effective precautionary measure is to specify the requirement of a performance bond in the contract. A performance bond will provide the employer with a degree of financial protection if the contractor breaches the contract for any reason, including insolvency. The contractor is obliged to approach their bank or surety market to seek the bond. As surety specialists we assist our contractor clients by negotiating with the numerous sureties to obtain a competitive bond in favour of the employer.

Employer, Contractor and Sub-Contractor Benefits

There are benefits to the employer and the contractor in obtaining a performance bond. To the employer, the risk of financial loss due to non-performance by the contractor is partially mitigated by the typically 10% bond. They obtain the superior financial strength of a regulated and highly rated surety. Finally, the prequalification by the surety endorses the financial strength and ability of the contractor.

For the contractor, obtaining the bond shows their professionalism, indicates their financial capability, prevents delays in starting projects and receipt of payments, avoids of the risk of losing the job and fulfils a contractual award requirement.

Whilst this article has focused on employers the same consideration should be given by contractors in relation to their sub-contractors. An employer should arguably want to know that their appointed contractor is obtaining bonds from the appointed sub-contractors in order to provide an extra level of comfort for the employer.

During such uncertain economic times and with insolvencies set to rise further in 2019 it has never been more important for employers and their contractors to be aware of the precautionary measures they should take to mitigate the risks of contractor and sub-contractor insolvency.

As specialists in the bonding market we can assist in relation to the areas highlighted by Cripps and Hardwicke.

Hannah Lyon-Wall
Executive Director

22nd October 2018
Financial and Credit Partners with Sevenoaks Chamber of Commerce

Financial and Credit Insurance Services, an owner managed independent credit insurance broker, has partnered with The Sevenoaks and District Chamber of Commerce under a new scheme aimed at local businesses.

The Business Partner Scheme is an all-inclusive scheme allowing key members to participate in multiple Chamber events throughout the year, and work more closely with the Chamber team in identifying specific support services to address their particular business needs.

Financial and Credit Insurance Services have been headquartered in Sevenoaks since 1994. Their team of experienced brokers work closely with businesses of all sizes, from SMEs to multi-national corporations across all industry sectors, protecting businesses against the effects of bad debts.

Hannah Lyon-Wall, Executive Director at Financial and Credit and regular attendee at the Sevenoaks Chamber of Commerce is delighted to be part of the new Business Partner initiative. “As a long standing member of the Sevenoaks business community, we look forward to this partnership as an opportunity to offer support and advice to benefit Chamber members and the Sevenoaks District as a whole.”

Image: Left to right, Guy Letheren, Ruth Letheren, Hannah Lyon-Wall

19th September 2018
Launch of New Trade Credit Insurance Scheme with Partner IAAF

The Independent Automotive Aftermarket Federation (IAAF) has introduced two new trade credit insurance schemes for SMEs and larger businesses in the aftermarket, offering protection against the effects of bad debts and bringing a wide array of benefits.

The schemes, from one of the UK’s leading independent specialist trade credit insurance brokers Financial and Credit Insurance Services Limited, are exclusively available through the IAAF to its members.

One of the schemes is specifically designed for SMEs with turnovers of up to £5 million, offering affordable premiums depending on turnover and liability level, with a variety of liability levels to suit a business’s debt exposure. Other features include international overdue debt collections options to assist with debt management, and domestic and international trade protection.

There is also a scheme tailored for businesses with a turnover in excess of £5 million, with a range of policy structures available depending on business needs, as well as optional endorsements and add-ons for full scope of insurance cover, while providing a full assessment of credit insurance requirements.

Both insurance schemes cover 90% of the value of insured losses, with non-obligation quotations provided.

The features for both schemes come with a raft of benefits to members, including the removal of risk of trading with new or unknown customers, maintaining strong positive cash flow and decreasing bad debt reserves while strengthening the company balance sheet. There is also access to greater finance and funding opportunities, as well as to risk management services on customers and industries.

All policy holders are given a dedicated customer contact and access to the insurer’s web portal, allowing businesses to easily manage their policies online.

Chief Executive, Wendy Williamson of IAAF said: “Trade credit insurance can be invaluable to any organisation, made even more evident in January with the collapse of Carillion which saw an estimated £100m+ owed to uninsured creditors. We’re delighted we can now offer this service to our members throughout the aftermarket from such a reliable, reputable credit insurance partner.”

Executive Director, Hannah Lyon-Wall of Financial and Credit Insurance Services Limited “Some of IAAF’s members are already taking advantage of the scheme, and we are adaptive and supportive by tailoring a suitable scheme to fit in with their requirements.”