Contractors left unpaid when outsourcing giant Carillion collapsed this week are being offered support through their banks and promised flexibility by the taxman. The company’s sub-contractors, in fields from construction to project management and IT, had already being squeezed, as payment terms were extended to as long as 120 days, and many fear that with relatively low amounts owed (compared to an overall debt of £1.5 bn) they will struggle to get much attention on the creditors’ list.

With bills to pay, and the January 31 deadline looming for paying tax due through Self Assessment, many of Carillion’s contractors face a cashflow crisis. A glimmer of hope was offered to them yesterday when Greg Clark, the Business Secretary, announced that leading Banks had agreed to offer support to businesses affected by the crisis. “It is essential that small businesses exposed to the Carillion insolvency are given the support they need by their lenders,” Clark said.

The banks’ support measures include emergency lending such as overdraft extensions, waivers of fees and payment holidays. Lloyds Banking Group announced that it has established a £50 million fund to address the problem. Jo Harris, Managing Director for Business Banking at Lloyds, said: “Small businesses don’t normally have the cash reserves that larger businesses do, so any interruption to their cashflow can have a significant impact on their ability to survive. By supporting our small business customers during this difficult time, we hope we can help as many businesses as possible to get back on an even keel as quickly as possible.

The Federation of Small Businesses welcomed the announcement, but called for wider-reaching and longer-term support as well. The FSB’s Mike Cherry said: “The emergency measures put in place by banks for customers hit by Carillion’s collapse will provide some respite at a desperate time for hundreds of small firms. Many hundreds more are still yet to feel the knock-on impacts of the giant’s demise. It’s critical that they also receive support in the months ahead.

HMRC meanwhile has promised that it will take a “fast and sympathetic” approach to helping those whose ability to pay their tax bills has been hit by Carillion’s collapse. In a statement the department urged those affected to contact the Business Payment Support Service, and said that assistance can include deferring payments, waiving penalties and arranging time to pay.

These short-term measures will come as a relief to those affected, but longer-term questions are still raised by the situation. Most significantly, the power of a large company to push contractors and other small suppliers into over-long payment terms, coupled with the lack of power for small firms in bankruptcy proceedings, underlines the importance of the new Small Business Commissioner’s role in tackling late payments. Paul Uppal is new in the office, but the Carillion bankruptcy must make this a priority for him.

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