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Late Payment Continues to Torment Sub-Contractors

Customers failing to meet payments continue to hamper the growth of small subcontractors across the UK, according to research by specialist financial services provider Bibby Financial Services (BFS) and industry experts, The Vinden Partnership (TVP)

It doesn’t matter how much time has elapsed since the collapse of Carillion or even the volume of initiatives rushed through government; late payment still lingers. When the construction giant, Carillion, collapsed, the size of its debt pile proved devastating to companies all the way down the supply chain. A tragic chain of events followed, involving Carillion’s suppliers as well as suppliers with only an indirect connection to the construction company.

Unfortunately, this was not a localised incident, with alleged supply chain bullying later directed at large majorities of the British business community. A spotlight has since been shone on late payment and the government has attempted a multitude of initiatives to encourage business owners to pay suppliers on time. Unsurprisingly, the sector most affected has been construction, with Carillion and the recent bout of cold weather hitting contractors hard.

The Subcontracting Growth 2018 research, that was undertaken in the aftermath of the collapse of Carillion, has now released its findings which highlighted that three-fifths of subcontractors have suffered from bad debt in the last 12 months, with the average firm writing-off £16,149 each year.

Attempts by the government to tackle late payment have failed, so instead, business owners should consider other third parties. At the Credit Protection Association, large numbers of our Members have suffered from late payments, with many believing their only option to be immediate insolvency. This is not the case, and the combination of our debt recovery and credit management services have not only rescued many from the brink but have strengthened cash flow to the point of prosperity.

Specialist Finance Director at BFS, Kash Ahmad, said: “Bad debt is a serious issue for many construction businesses and, across the entire sector, more than £2.8bn is written-off each year, representing a significant economic leakage.

“Bad debt occurs due to insolvency in the supply chain, protracted default or dispute and the issue is particularly challenging for smaller firms that have already footed the bill for raw material and labour costs. This places a massive strain on these businesses, sometimes even causing viable firms to fold. For many, bad debt is the hidden cost of doing business.”

Ahmad added: “The Carillion situation has highlighted three fundamental issues in the sector: endemic late payment, bad debt and complexity of contracts. Each of these issues needs to be tackled by both the public and private sectors. However, there are also measures that small businesses can take in order to protect themselves against such issues. Such measures can include conducting thorough debtor reviews, seeking advice on contract negotiation and considering bad debt protection.”

Helen Wheeler, Managing Director for Construction Finance at BFS, said:“Making full and correct payment in accordance with contracts is a fundamental pillar of the Government’s Construction Supply Chain Payment Charter, but it is clear that this simply isn’t happening. Unless something more tangible is done, the growth of tens of thousands of small construction firms will continue to be stifled.”

Failed payment, bad payment and late payment are tormenting the business community, leaving the vulnerabilities of small business exposed. While many businesses hope for eventual reform and expect dramatic improvements to payment practices, business owners can also help themselves. Approaching third-party credit management companies can help protect cash flow from further financial harm and strengthen defences against future late payers.
At the Credit Protection Association, the collaboration between our debt recovery and credit management products improves the finances of our Members as well as securing their financial future. A more direct approach to late payment is for businesses to educate themselves on identifying late payers and eradicating them at the earliest opportunity. Our CPA credit checks, status reports and company directories afford Members with some peace of mind, reassuring them that their new financial power will not be threatened by customers not willing to pay.

Here at CPA, we fight to the tooth for our members, particularly those who have suffered through late payment and bad payment practices. We recently created a new department within our company dedicated to getting our members rightly compensated in accordance with the Late Payment of Commerical Debts (Interest) Act 1998. This has unlocked hidden cash and potential for our members and brightened their prospects and confidence on the construction site.