Written by: Keith Tully
Reviewed: Tuesday 19th June, 2018
Small and medium scale construction companies in the UK are seeing their finances impacted badly by problems with late payments.
According to the business finance website Funding Options, the average length of time that SME construction firms are now required to wait for payments from clients is up to 42 days.
That figure is up from an average wait of 40 days five years ago, with suppliers in the construction sector gradually seeing their invoices go unpaid for longer.
For companies within the construction sector supply chain, having to wait for weeks and months for payments puts pressure on cash flows and can eventually result in insolvency and entry into administration.
A total of 2,633 UK construction businesses became insolvent in the year to the end of March 2017, which was a jump of 8 per cent compared with the same figure from the previous year, according to the accountancy firm Moore Stephens.
Funding Options describes the issue of late payments in the construction industry as having been exacerbated by the collapse of the facilities management and construction services giant Carillion in the early weeks of 2018.
Carillion’s collapse resulted in widespread non-payments of money owed to construction companies across the country and serious financial difficulties for many of those left out of pocket.
However, industry heavyweights such as Carillion are understood to have already been putting a financial strain on smaller companies within their supply chains by insisting on leaving their invoices unpaid for upwards of 100 days in many cases as a matter of course.
“A single late payment can be an issue even for larger and more successful firms, and worsening delays could create more insolvencies,” said Conrad Ford, chief executive of Funding Options.
“Carillion’s collapse sent shockwaves through the industry, affecting smaller suppliers who will now never get paid what they are owed. Construction businesses have high overheads and labour costs, and many cannot afford to wait for payment for lengthy periods of time.
“It is crucial that construction companies understand all the options available to them for the funding they require to minimise the impact of late payments.”