Dealing with Late Payment in the Construction Industry

Dealing with Late Payment in the Construction Industry

13th February 2019

Here at Safety Fabrications we’re well aware of poor payment practice within the construction industry here in the UK.  This is an issue that we’ve addressed for our readers on several occasions, as poor payment has been highlighted as one of the major barriers to growth for construction companies in the SME (small to medium enterprise) category.  With some of the biggest, most successful property developers consistently taking a long time to pay, smaller construction contractors are put at risk of insolvency.  There is even a term for late payers in construction – they’re known as “cowboy clients”! 

The collapse of Carillion at the beginning of last year brought the issue of late payment (or even non-payment) into the spotlight because it hit the UK construction industry so hard, damaging so many construction SMEs. 

You may be surprised to learn that according to a voluntary board that monitors late payments, nobody informed the board about Carillion’s appalling late payment record until after the giant had collapsed!  This meant that sufficient warnings were not sounded, warnings that perhaps could have made a difference to some of the companies and workers who were left reeling in the wake of the Carillion fiasco.

The Prompt Payment Code was designed to reduce the number of late payment problems experienced here in the UK across a wide range of sectors.  However, signing the Code is voluntary and the issue of late payments is still with us and causing cash flow problems for small business owners across the UK.    

The Construction Industry Supply Chain Payment Charter is administered by the Chartered Institute of Credit Management (CICM) on behalf of BEIS (the Department for Business, Energy and Industrial Strategy) and is committed to ensuring that by 2025 the construction industry’s standard payment terms are 30 days and that retentions are no longer withheld.  This Charter applies to all parties to construction contracts and is designed to create a collaborative culture which promotes a resilient and sustainable supply chain.

In order to become a signatory to the Construction Supply Chain Payment Charter, you first need to be a signatory to the Prompt Payment Code.  Once your membership is confirmed you can use the CSCPC logo on your website and documentation to demonstrate your commitment to prompt payment practices. 

So many small construction company owners struggle to deal with late payment from their clients, spending both time and money that would better be dedicated to running and growing their business. 

Many are unaware that they can legally claim interest and debt recovery costs if another business is slow in paying for goods and/or services.  It’s vital from the beginning to agree on a payment date, which should be within 30 days when dealing with local authorities, or 60 days when dealing with another business.  In many cases, when payment has not been made by the date agreed upon, an email or letter pointing out that unless payment is made within 7 days you will charge interest and a late payment fee is enough to solve the problem.  When the customer or client is a regular, this can be an effective method of ensuring that all future payments are made on time.