Tim Barrett discusses the tough crackdown announced by the Government on late payments within the construction sector.

The Government’s recently announced commitment to tackle late payment in the Small Business Plan is good news for the construction sector, as prompt and fair payment is vital to the sustainability of small builders and the wider supply chain.

Late payments remain one of the biggest challenges for SME builders, disrupting cashflow, delaying projects and putting many firms at risk. Unlike larger volume builders, small firms work job-to-job and are far less able to absorb additional costs compared with the larger volume builders.

One of CAN’s key objectives has been to campaign for payment reforms. Payment delays cost the UK economy £11bn per year and results, on average, in 38 businesses closing every day. SMEs in construction comprise a high level of insolvencies, causing distress to the local economy and a decline in the wellbeing of the management, staff and supply chain.

We welcome the Government’s intention to introduce stringent late payment laws. Tightening the powers to penalise firms that pay late and introducing maximum payment terms, will provide a major impetus to developing a sustainable business model for our sector. Measures to improve access to finance for small businesses is also very welcome.

Angela Carney, managing director at Carney Consultancy is also President of Northern Counties Builders Federation (NCBF) which champions regional contractors. Her business represents over 200 contractors and Angela is well positioned to comment on how late payments have impacted on her clients and knock on affects for her own business.

Angela said: “There are many Carney Consultancy clients who, over the past two decades, have been badly impacted by late payments. The larger Tier 1 contractors delay payment to smaller firms and this affects their cashflow. Typically, a smaller contractor takes on a bigger job than they are used to and outlays for materials and labour. The Tier 1 contractor delays payments and the smaller business goes bust and others in the supply chain lose thousands of pounds, potentially sending them into liquidation.

“Also, if a contractor has cash flow problems and is waiting for payments, the bigger contractors or clients might intentionally delay payment further, knowing that if the subcontractor goes into liquidation, they won’t have to pay any outstanding monies they owe. Companies will not admit to this, but this happens in construction on a regular basis.

“Late payment is endemic in our sector and won’t be resolved quickly, meaning we will have to manage late payments for some time to come, as culture change can be a long journey.”