Client Insolvency Is Quietly Eating Your Margin

Two stories from this week's Construction Enquirer show the same risk from different angles. Specialist contractor McGee posted a £2.8m pre-tax loss after a £3.6m bad debt from a client's insolvency on a major London hotel job — a swing from £5.3m profit the year before. Meanwhile MMC specialist Mansell Building Solutions has filed a notice of intention to appoint an administrator, just six months after opening a new 45,000 sq ft factory in Oldham. Separately, developer SevenCapital had to step in and take over as main contractor on a £500m Kensington scheme after Ardmore's collapse halted the job.

None of this is unusual. It's the normal churn of construction. What's worth noticing is the scale of the hit relative to margin. McGee's turnover fell 11% to £134m and one bad debt of £3.6m turned a decent year into a loss. That's a swing of over £8m from a single client going under.

Scale that down to a typical SME subcontractor. Say you turn over £2m a year at a 6% net margin — roughly £120,000 profit. If one client owes you £100,000 on a stage payment and collapses before paying, you haven't just lost that invoice. You've lost most of your year's profit, and you're still on the hook for materials, wages and plant hire you already paid out. The debt doesn't wait for your margin to catch up.

This is where hours and process matter more than adjectives. A credit check before you sign a new client takes twenty minutes. Watching Companies House filings, CCJs and late-payment patterns on existing clients takes an afternoon a month, not a full-time job. The alternative — finding out a client's in trouble only when the payment doesn't land — costs weeks of chasing, legal fees, and in McGee's case, millions.

What to do this month

• Run a credit check on any client before you sign a contract over £50k, and re-check existing clients on big jobs every quarter.
• Cap your exposure — decide what percentage of your total debtor book one client is allowed to represent, and stick to it.
• Ask for staged payments or deposits on longer contracts rather than one lump sum at the end.
• Watch for early warning signs: late payments creeping later, requests to renegotiate terms, or filing delays at Companies House.
• Consider trade credit insurance if a single client failure would genuinely threaten the business.

None of this needs new software or a big project. It needs someone in the business treating client risk with the same discipline as site safety — because right now, for a lot of UK contractors, it's the bigger threat to the year's numbers.