College leaders are calling for an independent inquiry into the funding of all Training and Enterprise Councils following the collapse of South Thames TEC.
More than a third of colleges in England and Wales (36 per cent) contacted in a survey by The TES, after the receivers went in, said they were considering pulling out of TEC-funded initiatives.
Over a half (57 per cent) said the refusal of ministers to meet the Pounds 5 million debts had undermined their confidence in the movement nationally.
Few believed ministers who said the collapse was a "one-off". Many said they now feared for contract payments from other quangos such as hospital trusts.
Ministers this week asked two local TECs - Central London and South London - to take over the functions of South Thames which went into receivership in December. They will have a considerable amount of damage to repair. Four colleges are owed Pounds 2 million, 50 schools may have to pull out of TEC initiatives and private training agents face ruin.
The collapse has provoked an outcry in colleges over the payment-by-results funding system demanded by the Employment Department responsible for TECs. More than nine-out of-ten colleges (92 per cent) surveyed criticised the system which kept them waiting for cash, often weeks after training had finished.
One-in-seven said their TECs were "bad payers" but most had sympathy with the TECs who in turn were kept waiting by Government for cash.
Six-out-of-ten said they often paid out more than they received from the TEC for retraining unemployed people, reflecting pressures on cash-strapped TECs for training on the cheap.
Big colleges can earn more than Pounds 500,000 from TECs by running vocational and management training courses and schemes such as Youth Training and Training For Work - now replaced by Job Search.
Michael Austin, president of the Association for Colleges, said: "There should be a full public inquiry into the way TECs are funded, the use of outcome-related expenditure and the status of the work in colleges. There is widespread anxiety over the collapse, TEC money was always thought to be secure money."
Relationships between colleges and TECs have always been fragile. Efforts are being made to improve them and a new accord to ensure closer working this year was agreed nationally. This has suffered a major set-back, The TES survey of one-in-ten college principals and TEC liaison officers shows.
The survey also shows there is still considerable support for many TECs. While 50 per cent said they were "not satisfied" with their TEC, the reasons given were most often to do with Government policy. Almost nine-out-of-ten said ministers were the key culprits.
The greatest satisfaction among colleges was in areas where TECs were able to concentrate on new enterprises, job-generation and management initiatives. Least satisfaction was in areas where TECs had to concentrate on schemes for the unemployed.
Bryan Davies, the Labour party's further and higher education spokesman, said: "I know colleges are very worried about the price TECs are willing to pay colleges for the courses. Add to that the insecurity of late payments and there is a real cause for concern. If even one college is considering pulling out of TECs we should be worried. Ministers must address the whole question of funding."
Many managers in the survey said they were buying direct from industry where they were paid a better price for broader education and training, even if they were not severing links with the TEC.