Every year the construction sector ranks in the top three sectors with the most bankruptcies in Belgium. High material costs, long project cycles, pre-financing of sites and a chain of subcontractors make a construction company's cash flow particularly vulnerable. Whether you are a client paying a deposit, a main contractor working with subcontractors, or a supplier of building materials: you want to know whether your contractor will make it through next winter.
Signal 1: the liquidity trap
The most common cause of bankruptcies in construction is not a lack of work but a lack of cash to pay the running invoices. A contractor buys materials and pays wages weeks before the client approves and pays the progress statement. If one large customer falls thirty days behind, the whole chain grinds to a halt.
The check: the current ratio divides current assets (cash, stocks, outstanding invoices) by amounts payable within one year. A healthy construction company sits above 1.2: it has €1.20 in cash and short-term assets for every euro it must pay within the year. How to calculate the ratio yourself is explained in calculating liquidity and the current ratio.
| Current ratio | Assessment | What it means |
|---|---|---|
| > 1.2 | Healthy | Sufficient buffer to pay the current obligations. |
| 1.0 to 1.2 | Watch out | Tight margin. One delayed customer payment can cause problems. |
| < 1.0 | Red flag | More short-term debts than short-term resources. Acute danger. |
Signal 2: debts to the tax authorities and the NSSO
A construction company gasping for air pays the wages and the fuel first, then the main suppliers, and leaves the government (VAT, payroll withholding tax, NSSO contributions) waiting last. The NSSO does not send a bailiff after thirty days, so those withheld amounts become cheap bridging credit. Until the NSSO does issue a summons, and then things move fast.
Check 1: the balance sheet heading
Open the latest annual accounts through the "Annual accounts" tab and look on the liabilities side, under amounts payable within one year, for the heading "debts relating to taxes, remuneration and social security" (heading 45). For a company with a stable workforce that amount should be stable: it is the VAT of the last quarter plus the payroll withholding tax and NSSO contributions of the last month or quarter. If the heading rises year after year while turnover and headcount do not, the company is piling up arrears.
| Heading 45 over three years | Assessment | What it means |
|---|---|---|
| Stable, grows with staff and turnover | Normal | Ordinary current withholdings that are paid on in time. |
| Rises faster than the activity | Watch out | Possibly a payment plan with the tax authorities or the NSSO. Ask about it. |
| Doubles or more, staff costs fall | Red flag | The company finances itself with tax money. A summons is a matter of time. |
Check 2: the NSSO certificate and checkinhoudingsplicht.be
Certainty does not come from the annual accounts, but from two free sources. First, you can simply ask the contractor for a recent NSSO certificate (a certificate that he has no social security debts). A healthy contractor delivers it within the day. Second, anyone can enter an enterprise number on checkinhoudingsplicht.be, the joint service of the NSSO and the FPS Finance, and immediately see whether there are social or tax debts at that moment for which a withholding must be made. Keep a dated screenshot as proof.
The legal withholding obligation
For professional clients and main contractors that check is not optional advice. Whoever pays an invoice for immovable work to a contractor that has social security debts at that moment must withhold 35% of the invoice amount (excluding VAT) and pay it on to the NSSO. If the contractor has tax debts, you withhold 15% and pay it on to the FPS Finance. Both can apply at the same time.
Signal 3: the inverted pyramid
Construction is capital-intensive, so debts are normal: cranes, trucks, warehouses and site equipment are rarely paid in cash. But the ratio between debts and equity must be right.
The signal: a company that doubles its debts within a year without equity growing along, or while equity falls, is taking irresponsibly large risks. Often it concerns a large site that is pre-financed with supplier credit: if the client does not pay, everything collapses.
The solvency check
Divide equity by the balance sheet total and multiply by 100. That is the solvency ratio. You can also calculate it quickly with our health score calculator, or read the formula and the norms in calculating solvency.
| Solvency | Assessment | What it means |
|---|---|---|
| > 30% | Healthy | Solid own buffer. The company can absorb a bad site or a defaulting customer. |
| 15% to 30% | Watch out | Acceptable for the sector, but little room for error. |
| < 15% (and falling) | Red flag | Almost entirely financed with other people's money. Negative equity is the next step. |
Three extra checks in five minutes
- Legal status and date of incorporation. On the "Overview" tab you immediately see whether the company is active, whether it is in liquidation or judicial reorganisation, and how long it has existed. A construction company eight months old asking for a 30% deposit on a €150,000 renovation deserves extra questions. How to check the CBE data and the VAT number is explained in our article on the CBE check.
- Directors. On the "Directors" tab, click through to the person page of the managing director. If you see a series of earlier mandates at construction companies that went bankrupt, you are dealing with a serial founder. That is not forbidden, but it is a reason not to pay a deposit.
- Publications. Recent resignations of directors, a registered office move to a business centre or a capital reduction to absorb losses appear with a date on the "Publications" tab. More on that in what the publications in the Belgian Official Gazette tell you.
Checklist: the 3 red flags in construction
| Signal | Healthy | Red flag |
|---|---|---|
| Current ratio | > 1.2 | < 1.0 |
| Debts relating to taxes and social security | Stable, no debts on checkinhoudingsplicht.be | Rising year after year, withholding required |
| Solvency | > 30% | < 15% and falling |
Conclusion: a deposit is an interest-free loan
It is customary in construction to work with deposits, and a contractor does have to pre-finance materials. But a deposit is nothing other than an interest-free loan to a company you do not know. Only pay it after the check above, keep it limited and link every subsequent payment to an approved progress statement. If the contractor goes bankrupt, you as the client stand at the back of the queue and the deposit is usually gone.
Look up your contractor through the company search and check that he is not only a good builder but also a sound financier. Prefer everything in one report? Then look at the risk analysis. If you want the full step-by-step plan for every type of company, read the 5 signs of an approaching bankruptcy.