Small suppliers have always suffered at the hands of big businesses – but when those giants go under, the fallout can spell utter disaster.
As the news spread over the past weeks of Carillion’s £1.3 billion debt, work on many construction sites across the UK came to a standstill and analysts warned that many businesses were unlikely to be paid, throwing their viability into doubt.
Carillion is holding up to £800m in retention payments – the commonplace practice of holding back part of a contractor’s payment as security to ensure work is carried out.
It had also failed to pay on time for a number of contracts – perpetuating the unacceptable levels of slow payer ethic commonplace in our industry.
All contractors would prefer to be paid within a month of invoicing but, when dealing with large companies, they are rarely in a position to argue if they don’t like the terms on offer.
In the current climate, many large firms demand 60-day payment terms. But almost 20% of specialist building contractors admit to paying between 60 and 90 days after invoices have been received, and some admit to pushing this beyond 120 days.
As a result, contractors and sub-contractors – which represent the backbone of our economy – are always battling to make ends meet.
In December 2008, the Prompt Payment Code was established to help small suppliers recover the £30.2 billion owed to them by some of the UK’s largest companies.
But the scheme was blasted as a failure after many firms ignored the terms and suppliers were cut out of future business dealings if they kicked up a fuss.
In January, Richard Beresford, chief executive of the National Federation of Builders, released a statement saying that late payment was still a huge problem. He said: “When you factor in some main contractors imposing 120-day payment terms, £10.5 billion withheld in retention payments, and around £22 billion in annual SME turnover is paid late, it becomes clear why so many SMEs are in a precarious situation.”
With the aftermath of the Carillion collapse causing widespread devastation, we need to ensure that late payment is seen as totally unacceptable. We should start by ensuring that public sector contracts are not awarded to companies known for their poor payment practices.
We also need the Construction Leadership Council, which has promised to launch a construction payment charter introducing 30-day payment terms by 2025, to ensure this is monitored and enforced properly.