Construction sector suffers from late payments but there are ways to help minimise your risk

Posted on by Cindy Yip

Estimated read time: 4 mins

There’s no definite answer or research conducted into why late payments are particularly high in the construction sector but it could be down to several factors. Legal issues could hold up payments with disagreements over when a contractor can claim payment from a company, these problems are particularly prevalent in public sector projects; thus resulting in late instalments of payment due to the disagreement in payment times. 90 per cent of construction firms agree to contractual payment terms with their clients of 45 days or fewer, but just 57 per cent of them received payments on time (1). The research also found that the most affected sub-sectors were generally contractors, civil engineering providers and installers of wiring and fittings – with the latter suffering mainly due to large projects over running expected budgets.

Building and construction companies settled their overdue bills 21.2 days beyond terms (DBT) in the year to March 2015. That’s a slight improvement on the 21.7 days recorded in the previous 12-month period. The national average across all sectors was 24.3 days between April 2014 and March 2015 with UK’s smallest businesses being the quickest to tackle overdue invoices, as companies with one or two employees settled bills 20.58 DBT according to figures from Experian.

With UK businesses as a whole being owed £26.8 billion in late payments in 2015 (1), there needs to be more vigilant processes in place when it comes to controlling your cash and payments.

Here are a few tips on how to minimise your exposure to late payments:

Laying out payment terms from the beginning – make sure both parties have agreed to the payment terms and this is written down on paper so that it’s contractually binding. This will help to avoid any disagreements in the future and rather than trying to recall what either party have agreed to previously, you can refer back to the paperwork.

Take action quick – Keep an eye on payments that are soon to be due so you can take action straight away once they become overdue. To help with this, set time aside each week to go over your accounts and payments to familiarise yourself with what’s coming up financially. Budget permitting, consider hiring a credit controller to take care of your collections; losing track of a few payments could quickly add up and contribute to a negative cash flow.

Have good visibility of your accounts – Know where your cash is in the business, which customers owe you money and how much. Have an efficient system to be able to get an overview of these and prioritise those payments that are at higher risk of not paying you.

Monitor your customers and sub-contractors – By monitoring old and existing customers and sub-contractors, you can be in the know of their business and financials. If a business runs into problems, the first people they’ll be informing might not be their business partners. Pay attention to whether they’ve started delaying payments recently or stay alerted to the news to see if there’s anything in particular that may affect their industry.

Late payments place unnecessary strain on businesses, often causing viable firms to fold because of it. With over 280,000 construction business in the UK, employing an estimated 2.9 million people (2), it’s vital that you protect your business against the risk of bad debt by taking steps to reduce any cash flow strains.

Protect your business with Experian’s UK business credit reports. Determine the credit worthiness of customers or sub-contractors with a complete and in depth analysis of their business’ credit information. You can view detailed financial payment trends, see any current or past adverse information such as County Court Judgments (CCJs) or see details of their directors and mortgages. Combine this with Experian’s payment performance feature and you could help protect your business’ cash flow and financial status straight away. Click here to find out more.

Sources: 1 eque2; 2 ctp

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