Columnist

Late payments plan good news for building sector

The Government’s commitment to tackling late payments 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 to larger volume builders. 

One of Construction Alliance North East’s key objectives has been to campaign for payment reforms. 

Payment delays cost the UK economy £11 billion per year and result, 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 major impetus to developing a sustainable business model for our sector.

Measures to improve access to finance for small businesses are also very welcome. 

Angela Carney, managing director at Carney Consultancy, who is also president of Northern Counties Builders Federation, adds: “There are many clients who, over the past two decades, have been badly impacted by late payments. 

“Typically, a smaller contractor takes on a bigger job than they are used to and then outlays for materials and labour.

“The tier one contractor delays payments and the smaller business goes bust, and others in the supply chain lose thousands of pounds, potentially sending them into liquidation.

“Furthermore, if a contractor has cashflow 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 it happens in construction on a regular basis.

“Late payments are 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.”

Tim Barrett is chair of Construction Alliance North East 

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