The National Federation of Builders (NFB) has highlighted how late payments and unpaid debts are crippling SMEs in the construction sector.
30% of late payments, in the UK in total, are in the construction sector, with some £30 billion owed to small and medium sized firms. An earlier study by Building.co.uk reported that small building firms have up to 16% of their turnover outstanding in unpaid bills.
Is this state of affairs endemic to the industry, and what can SMEs in the construction sector do about it?
Damaging the Grassroots
“Often local construction companies are using local workers, and training local apprentices,” observes Jan Firth, of Firth Law, a specialist in debt recovery and enforcement. “They are, effectively, grassroots businesses and employers, vital to local economies, who are falling victim to larger companies who are failing to meet their payment obligations.”
“This has implications for the wider economy,” Jan comments, “because investors are already more reluctant, arising from economic uncertainty surrounding our exit from the EU.”
“Growth in the construction sector has slowed, and jeopardising the future of construction firms through late payment will add fuel to the fire”
Obligations and Actions
With constraints on cash-flow and ever-tightening margins, the construction sector is continuously vulnerable to late payment practices. Recent government regulations are set to try and tackle this issue.
“The Government wants to increase transparency by making large UK-based firms and LLPs disclose things like payment terms and their resolution processes upfront,” Jan explains.
This late payment legislation will apply to businesses with an annual turnover of more than £36m; a balance sheet total exceeding £18m; or more than 250 employees.
As someone highly experienced in the legal sector, Jan also points out that legal obstacles can also hold up payments in the construction sector.
“There can be disputes over when contractors and companies are entitled to claim payment, and can arise during projects, when contractors are expecting periodic payments but aren’t getting them on time”
Jan advises that there are measures construction businesses can take to help prevent late payments occurring, or act as a deterrent.
“Legislation aside, you should always make your payment terms clear and be diligent in chasing unpaid invoices. Add interest for late payment. At the very least, you should manage your finances in such a way that you have a buffer zone to protect you from the impact of late payments,” she says.
“Should late payments occur, SMEs should act decisively and draw on professional debt recovery advice,” concludes Jan.