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By Rose Keleher, and Kyra O’Reilly
The rundown
£7bn
liabilities at liquidation
£29m
cash left in the bank
30,000
suppliers owed £2bn
<1p
returned per £1 owed
£2.6bn
pension deficit
What happened with Carillion? 8 years on.
On 15 January 2018, Carillion, the UK’s second-largest construction company who employed around 43,000 people, plunged into compulsory liquidation with liabilities of nearly £7 billion and just £29 million in cash (House of Commons Library). It happened barely six months after the company had projected a picture of health.
There were warning signs that Carillion was in trouble. But the UK Government carried on issuing contracts to the firm, creating a false sense of security to suppliers.
But the issues beneath it had been building for years.
Carillion grew through debt-funded acquisitions while its revenue stagnated. Between 2009 and 2017, its debts rose by 297% while the value of its long-term assets grew by just 14%. To keep the picture looking strong, the company leaned on aggressive accounting, booking profits on long-term contracts based on optimistic forecasts, before the cash had come in.
But on 10 July 2017, Carillion announced an £845 million write-down on its contracts, later increased to over £1 billion, wiping out the company’s entire profits from the previous seven years combined. The shares lost 70% of their value over the announcement and the two days that followed.
The finance-function failures at the heart of the Carillion collapse
- Accounting that masked reality: Parliament’s inquiry found that Carillion’s accounts were systematically manipulated to make optimistic assessments of revenue, in defiance of internal controls. The finance director for a decade, Richard Adam, was described as the architect of these policies.
- Perverse incentives: cash conversion was used as a headline KPI and fed directly into executive pay — creating a powerful reason to make the numbers look better than they were.
- Suppliers used as a bank: Carillion was a notorious late payer, enforcing standard payment terms of 120 days despite being a signatory of the Prompt Payment Code. It also abused a government supply chain finance scheme — using roughly £500m of it as a line of credit while not recording it as borrowing on its balance sheet, which flattered its debt position.
- No one challenged it: non-executive directors failed to scrutinise or challenge the executives, and auditor KPMG had signed off unqualified opinions for 19 straight years.
Even while cash was draining away, Carillion paid a record dividend of £79 million and awarded large executive bonuses off the back of its rosy 2016 accounts.
"A story of recklessness, hubris and greed — its business model was a relentless dash for cash."
The outcomes of the Carillion collapse
The collapse rippled outward, and the people hit hardest were the ones with the least power to see it coming.
- Suppliers and subcontractors: Carillion owed around £2 billion to its 30,000 suppliers, sub-contractors and other short-term creditors — most of whom risked getting little or nothing back because of their low priority in the creditor hierarchy. One estimate put recovery at less than 1p for every £1.
- Banks left badly exposed: banks including Barclays, Santander, HSBC and Lloyds were owed almost £2 billion, though disclosed losses came in far smaller than the headline exposure.
- Trade credit insurance barely dented it: insurers paid out more than £30m to firms with trade credit policies.
- A domino effect through the supply chain: individual firms reported unpaid debts ranging from £250,000 to £2.7m, and Carillion’s liquidation contributed to a wave of supply-chain distress. The liquidation caused an estimated 75,000 job losses across the chain.
- Balfour Beatty: rival contractor Balfour Beatty took a £40m hit.
- Investors: Carillion’s total market value fell from £1.3bn in March 2016 to £184m at the end of 2017, wiping out well over £1bn across all shareholders; fund manager Kiltearn Partners alone lost more than £40m.
- Pension scheme members: a pension deficit of around £2.6 billion left 27,000 members facing reduced pensions — the largest ever hit to the UK’s Pension Protection Fund.
- Taxpayers: the government committed around £150m in taxpayer money to keep essential public services running.
- Accountability: in early 2026, the FCA fined former CEO Richard Howson £237,700, following fines of £232,800 for former FD Richard Adam and £138,900 for Zafar Khan. KPMG had earlier been sued for £1.3 billion over its audits, a claim settled confidentially in February 2023.
What finance teams can do to avoid the same fate as Carillion and its customers.
The uncomfortable truth of Carillion is that thousands of well-run suppliers did nothing wrong and still got wiped out. A single failing customer was enough to sink them, because they relied so heavily on them. That’s the real lesson for any modern finance and AP function.
1. Monitor the financial health of your key suppliers — continuously. The warning signs were public, if you knew where to look: credit-score deterioration, county court judgments, extended filing deadlines at Companies House, falling share prices and spikes in short interest. Don’t rely on an annual credit check. Watch for deterioration in your most critical suppliers on an ongoing basis, and build contingency plans before you need them.
2. Treat supplier concentration risk with care. Ask the blunt question: what percentage of your annual revenue or receivables sits with your single largest customer or supplier, and how would it impact you if they stopped paying or supplying tomorrow? If one customer or supplier failing would blow an irreversible hole in your cash flow, that’s a risk to quantify and manage.
3. Watch payment behaviour as a signal. A company that suddenly stretches you from 30 to 120 days may be using you as free credit because its own cash is drying up. And here’s the subtler tell: a customer quietly renegotiating terms is often a bigger red flag than one that does it openly. Carillion’s 120-day terms were standard practice, so the real signal was the use of suppliers as a permanent source of working capital, baked into policy.
4. Stress-test your own cash flow against a major-customer failure. On that note, don’t simply monitor customers or suppliers. Model the liquidity hit if your biggest customer defaulted tomorrow, and know in advance what you’d do about it.
5. Make your own controls un-gameable. Carillion’s controls looked fine on paper. The failure was that KPIs and incentives actively pushed people to circumvent them. Strong P2P controls are vital, and care should be taken to plug holes in your processes. Ideally, control should act as it’s own incentivised metric – something that if done correctly and diligently is rewarded, acting as a counterbalance.
6. Don’t let “healthy accounts” substitute liquidity reality. Reported profit and available cash are not the same thing. Carillion’s long-term contract accounting recognised revenue on forecasts before the cash arrived, which let healthy-looking accounts mask a cash-negative business. So ask: “where is the money, and what’s our exposure if it stops?”
7. Don’t treat a clean audit as proof of health. KPMG signed off unqualified for 19 straight years, right up to the collapse. A clean opinion tells you the accounts are internally consistent — not that the business is solvent.
8. Treat insurance as a failsafe only. While trade credit insurance can act as a useful cushion, it’s nowhere near a substitute for managing your exposure in the first place.
9. Build in independent challenge. Carillion’s non-execs and audit committee failed to push back. Have someone (internal audit, a credit-risk function) whose specific job is to challenge the CFO’s numbers and processes, and give them the power to make change and hold people accountable.
Our blog on building an anti fraud culture speaks more on this point.
10. Watch for anomalies at the master-data level. Sudden changes to payment routing, bank details or entity structure are often the earliest operational tell — well ahead of anything visible in the public accounts.
How FISCAL helps you see the supplier risks coming
Most of these lessons come down to one thing. Knowing the state of your suppliers before a problem lands on your ledger.
That’s what our supplier risk intelligence module is built for. Our AI-native software continuously analyses every supplier in your file for duplication, error and dormancy, and compares them against credit score, sanctions and adverse media data to surface risks as they emerge.
