Don’t let slow payment hold back your business By MARTIN BENNISON and TIM WILKINSON of Ultimate Construction Finance
>FIRST TIER SUBCONTRACTORS in the construction industry are
between a financial rock and a hard place – they have to pay for wages, materials and plant long before they get the money in from the main contractors. There have been several different initiatives to encourage the move towards more of a prompt payment culture. However, real progress has been slow and many subcontractors are turning to innovative Construction Finance products to help fuel their growth.
A problem that’s proving remarkably stubborn According to a recent survey carried out by BACS Payment Services Limited, late payment is now the single biggest threat to the survival of many construction firms in the UK, with over three quarters of businesses being forced to wait at least a month beyond their agreed contract terms before getting paid. That’s despite the fact that in 2008 the Government implemented the ‘Prompt Payment Code’ to help SMEs in general. A survey last year by the Institute of Directors found that two-thirds of SMEs were still experiencing late payment. The Government tried another approach last year, with the introduction of the ‘Construction Industry Payment Charter’. The deal, organised with the Construction Leadership Council, currently commits contractors and
Martin Bennison
Tim Wilkinson
clients to pay their suppliers within 60 days. From June 2015 this will be reduced to 45 days and from January 2018 to 30 days. It also sets out clear commitments in respect of ‘pay less’ notices, contract variations, electronic payments and Supply Chain Finance schemes.
Sounds good, but… By signing up to the charter, an organisation will agree to apply the commitments in its dealings with its supply chain, to be monitored against a series of Key Performance Indicators (KPIs) and to consider the performance of its supply chain when awarding contracts. The KPIs for monitoring compliance with the charter will be published in due course and mirror the new statutory reporting requirements which will come into force from April 2016. While these initiatives are certainly a step in the right direction, some within the industry are questioning the likelihood of real success, noting the slow rate at which companies are signing up. There are also further concerns about how the scheme will be policed and enforced.
Giving trade bodies more teeth Last month, the Government also set out proposals that will allow subcontractor trade bodies to challenge unfair main contractor payment terms in court. The proposed new powers would give trade bodies more power to challenge late payments and unfairly long payment terms on behalf of their members. It is hoped that these measures could be enforced before contracts are signed, giving smaller businesses more confidence and legal backing to insist on more reasonable payment terms.
Smart businesses are finding their own solutions With the economy now in full swing again many first tier subcontractors simply cannot afford to take a ‘wait and see if things improve’ attitude. If they are to take on new and bigger contracts they need access to funding now. At Ultimate Construction Finance we’re seeing a surge in demand for our specialised facilities. These have been specifically developed to support the working capital and growth aspirations of first tier subcontractors in the plastering, plumbing, roofing, heating, flooring, decorating, groundworks, scaffolding, electrical, maintenance and industrial cleaning sectors, along with many other specialist trades. We can offer advances of up to £3,000,000 that bridge the gap between raising applications and getting paid. What’s more, we fund Uncertified Applications for Payment on a fully confidential basis and our pricing matrix is clear from the outset. To qualify you just need a turnover of £500,000, to have a positive tangible net worth and be profitable. T • For more information contact Ultimate Construction Finance now. Martin Bennison – mbennison@ultimatefinance.co.uk – 07834 524 380. Tim Wilkinson – twilkinson@ultimatefinance.co.uk – 07870 212 180.
www.constructionnational.co.uk
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