Why is construction the worst industry for late payments?

We take a deeper look at why the construction industry accounts for 31% of all unpaid invoices in the UK

Following the fall of construction giant Carillion late last year, a light has been shone on the construction sector as a whole, and in this blog we look at why it is one of the worst offenders for making late payments.

Payment delays average over 15 weeks. The construction sector accounts for 31% of all unpaid invoices in the UK. It’s the longest wait for suppliers out of any UK industry. Larger companies are known for delaying payments and the knock-on effect for smaller suppliers hits hard. Labour costs go unpaid and materials can’t be purchased. It’s why there needs to be an industry-wide impetus for invoice insurance. Invoice insurance would enable payments to be protected in case of client insolvency or protracted default.

With a rocky financial climate caused by Brexit uncertainty, stoked by the fall of big players like Carillion, smaller suppliers that are keen to do ambitious business need to prioritise protecting their payments.

In July 2017, the UK Government launched a report called ‘The Taylor Review of Modern Working Practices’ with an intention to better understand some of the challenges businesses face today. One of the key end goals was for all work in the UK to be equal, so that companies can succeed no matter their size. Easier said than done. However some steps have been taken to improve the situation. From 6th April 2017, legislation came into effect requiring large companies to publish their performance and payment practices twice a year, on April 5th and October 5th.

In addition, back in 2016, the Construction Industry Payment Charter was revised, introducing plans for all public sector contracts to pay suppliers within 30 days, starting at the end of this year. Following Carillion’s collapse, Bury North MP James Frith has tabled an early day motion in parliament, adding pressure for the government to tackle late payment culture. He is demanding the government to honour all outstanding public contract payments for work already completed. Frith also proposes that those who don’t pay up are disqualified from future public contracts bids. Tough measures, but perhaps that’s what the industry needs.

Frith has other ideas too including any redistributed Carillion contracts to be awarded to SMEs. He also wants independent and secure deposit protection schemes and tougher measures to control borrowing against public contracts. Enforcement is another important factor. It’s one thing to have the policy in place but another to make sure companies play by the rules.

Public sector contract payment limitations are routinely ignored. Carillion for example had 126 day payment terms which exposed thousands of smaller businesses.

In a recent survey, a fifth of smaller construction suppliers said that they would be able to invest in marketing if late payments weren’t so obstructive. 21% mentioned that they would have the cash flow to hire extra staff. Unpaid invoices are clearly holding these companies back. It’s another reason why invoice insurance is crucial to keeping suppliers afloat – if your time is spent chasing payments, at times unsuccessfully, then of course it’s going to be harder to run your business ambitiously and make important expansion decisions.

The length of the supply chain exacerbates the issue further. If a housebuilder delays payment to a builders merchant, the suppliers to the merchant will likely have to wait for their invoices too and in turn their own supply chain gets interrupted. So whilst the industry slowly implements better practice with added pressure from government policy, invoice insurance cover remains a wise investment. Unpaid invoices shouldn’t be an issue and shouldn’t lead to so many companies going under which affects the health of the sector as a whole, but that’s the unfortunate situation for now. Make sure you get invoice insurance to give your company the protection it needs to grow fast, but also to grow safely.

We’d be delighted if you get an invoice insurance quote for by clicking the link below – it’s a simple process and won’t take long.