By Christopher Love, Head of Corporate Restructuring and Insolvency at Primas Law

There’s no doubt that businesses are feeling the pinch, but none more so than the construction sector, after new stats revealed a 19.9% increase in insolvencies in February. Inflation and interest rates may have steadied, but the sector is still being hit hard with volatile material costs, labour shortages, and delayed payments all combining to make construction a precarious industry.

How have we got here?

The construction sector has been faced with sustained challenges since the pandemic, with the war in Ukraine and global supply chain issues all sending material costs soaring; and whilst some costs have stabilised, others remain unpredictable.

Aside from volatility in cost, there’s also a greater volatility in labour. Brexit has seen an exodus of European workers leaving the UK, and the pandemic also caused many older workers to re-evaluate their lives and take early retirement.

If we add in the increase in fixed-price contracting – many of which didn’t factor in high inflation – then these pressures quickly squeeze cashflow. For SMEs in particular, a single late payment or unforeseen delay can have devastating consequences.

The importance of monitoring the finances

At the heart of any construction firm’s financial resilience is the ability to understand its cash position in real-time. Maintaining accurate, up-to-date accounts isn’t just good housekeeping, it’s essential for spotting liquidity issues before they become existential threats. In a sector where payment delays are common and costs can fluctuate rapidly, directors need clear visibility of their income, outgoings, and liabilities.

Without this financial clarity, it becomes nearly impossible to make informed decisions, forecast cashflow accurately, or respond effectively to economic shocks. Regularly reviewed accounts enable businesses to identify pinch points early, adjust spending or renegotiate terms, and, crucially, seek professional support where needed.

How early intervention will help

The earlier a business seeks legal and insolvency advice, the broader the range of options available. Early action may avoid the need for a formal insolvency process as informal options are available, from time to pay arrangements with HMRC to negotiations with creditors.

If further action is required then the insolvency practitioner will be able to advise on the use of a Company Voluntary Arrangement (CVA) or Administration.

A CVA allows a business to agree a formal repayment plan with creditors while continuing to trade. Alternatively, Administration places an insolvency practitioner in control, with the aim of rescuing the business or achieving a better result for creditors than liquidation.