The late payment of commercial debts is an issue across many business sectors. However, over the past few years the construction industry has been particularly badly affected.

According to research carried out earlier this year, late payments are now the main risk factor for the majority of construction companies in the country. More than 75% of companies in the industry are waiting at least a month over their agreed payment terms.

 

Late payment problems in the construction industry

So why is the late payment of invoices becoming such an issue for construction firms? In the past, it has almost become an accepted practice for larger contractors to take many weeks to pay their subcontractors and suppliers. The issue of companies retaining cash becomes more of an issue during tough economic periods.

Many businesses in this sector are small, often family-run companies, that operate on tight financial boundaries. When they are forced to accept payment terms that are over 30 days it can mean the difference between surviving in a tough economic climate and going under.

The late payment of invoices can cause cash flow issues for businesses, resulting in it being unable to pay its own suppliers, and in serious cases, its staff. It can also result in the business paying additional fees and costs, such as bank overdrafts.

These problems can create a domino effect throughout the industry – cascading down from the larger companies though to smaller construction firms and builders’ merchants.

 

What help is available for late payments?

The Prompt Payment Code was introduced by the government in 2008, as an attempt at reducing the problem of late payments. This was aimed at SMEs, who were then owed around £30.2 billion in outstanding invoices from larger businesses. However, many of them were still experiencing invoices being paid late, even after the code was brought in.

In 2014, they implemented the Construction Industry Payment Charter. Under this, large contractors, clients and government departments signed up to an agreement to pay their suppliers within 30 days.

These attempts at changing the payment structure of companies haven’t been completely successful. A report published by Construction News in March of this year looked at the payment records of the UK’s top 100 construction firms. It highlighted that contractors paid their suppliers within an average of 43 days. Over a quarter of invoices were not paid according to their original terms.

 

How can we resolve the problem of late payment?

There isn’t an instant solution to the issue of the late payment of commercial debts within the construction industry. However, businesses can be more knowledgeable about the companies that they are dealing with.

It’s important to check the financial situation of any business that you are dealing with, either directly or indirectly – no matter how well known they are. With your direct client, you should continue to monitor them to ensure they remain solvent throughout the contract.

If you’re relying on suppliers to deliver goods for time-sensitive work, such as windows and doors, make sure they are able to satisfy the full order and deliver on time.

Where a company suddenly lowers its payment terms it could be a sign that they are experiencing cashflow problems.

By having a better understanding of who you are doing business with and their financial situation, it can make you more aware of any issues and enable you to take swift action to limit any risk to yourself.

 

The benefits of prompt payment

With improvements in payment practices throughout the construction supply chain, benefits will be felt across the sector. When companies are paid on time, they will have more funds to invest in their businesses. This will see increases to efficiency and productivity levels, providing a boost to the sector as a whole and creating a better end product for customers.

When businesses develop a reputation for paying on time suppliers will be more willing to work with them.

 

Business debt recovery

Whatever sector you operate in, whether it’s construction or hospitality, financial services or marketing, there are statutory rights you have when clients fail to pay on time.

The Late Payment of Commercial Debts Act enables companies to claim interest on invoices when they are paid late.

There are also additional fees that can be charged in order to recover the costs of collecting the debt. This enables companies to claim back the fees for employing a business debt recovery company. Often the use of a third party can stir an otherwise reluctant customer to pay their outstanding invoices.

 

Finding a debt recovery company

At CEA Limited we work with clients across a variety of different sectors, including the construction industry, to help them recover unpaid invoices. We can take cases from the initial calls, through to court action and enforcement if required.

To discuss your debt collection requirements, contact our team today on 0113 532 8350 or email office@cealimited.co.uk.