Home Contractor's CornerBracknell's View Dealing with the challenge of poor payment practice

Dealing with the challenge of poor payment practice

by Matt Downs
Bracknell Roofing Simon Smith

A large portion of my career in the roofing industry was spent in roofing material sales and in my experience it’s fair to say in that world getting paid for goods and services supplied is pretty straightforward. However, in the world of a specialist contractor it’s a totally different ball-game

So what challenges does a specialist contractor face when it comes to getting paid? There are numerous, so I will focus on a few key points.

Payment terms

Firstly, for many roofing contractors almost every sale is governed by detailed and strict contract terms and conditions issued by the customer, which are often bespoke for every project. Sometimes these terms and conditions mirror without any scaling, those of other contracts in place further up the project chain, such as those issued to the principal contractor by the project client. In some cases, individual project terms and conditions are also governed by an overarching framework agreement in place for a fixed-term. Consequently, the acceptance of an order can be a very detailed and time-consuming affair because every new project contract has to be carefully reviewed.

Payment terms are different from contract to contract, so sub-contractors like us have to have systems in place to manage their sales ledger and debtor ageing, bespoke for every contract or customer. Compounding the challenge of varying payment terms, is the issue of application or billing cut-off dates required under the contract or by the customer. Cut-off dates are extremely varied across the piece, ranging from mid-month to just after month-end, so we have to be on the ball to avoid late billing, which results in extended payment timeline. Then there is the issue of self-billing, which is a process adopted by some very important customers in the market-place. Whilst self-billing systems do present both benefits and disadvantages to sub-contractors, it nevertheless requires further tailoring of business process and sales ledger management if payment issues are to be avoided.

Validation of completed supply

The next challenge is in completed works sign-off. Understandably many of our customers have sign-off systems in place because production is dealt with by one department and contract budget management and payments are dealt with by another department, so sign-off sheets are required to validate satisfactory completion of works invoiced. In principle this is a perfectly logical system to work with but where it becomes a challenge is in the logistics of getting work signed-off by the right person, in time and then ensuring that copy of the sign-off sheet is supplied to the right person or department within the customer’s organisation in time to meet any monthly cut-off deadline in place. Bearing in mind that in many cases the sign-off sheet has to be signed on site, it is no mean feat to make sure this part of the process of getting paid is actioned correctly and on time to avoid delay in payment.

Paperwork and communication

This leads me into the issue of paperwork and communication. After having measured our works, generated our application/billing document on time, got the works signed-off by the right person in time and sent the monthly billing pack to the customer before their cut-off date, there is still the issue of how and to whom the information is sent. Some require hard copy sent by post, some require electronic copy sent by email, some require hand delivery and some require a combination of these methods. So, when you think you’ve got everything done on time, you still need systems in place to make sure the information gets to the right person or department, in the right format/s before the monthly deadline expires. And even after having achieved all that, when requesting payment certification and confirmation of payment date the following month or whenever the contract terms require post billing, on occasion we get a response of “I never received it”, or “it was sent in the wrong format”, or “this document was missing”, or “it wasn’t passed on to me on time”. Many of our customers are not unreasonable in these circumstances but the point remains, they could be if they wanted to be, so relationship is vital in these situations.

Retentions

Finally, and potentially the most challenging of all payment issues and practices a specialist contractor has to deal with is the issue of contract retention. This is money held back from invoicing by the customer at an agreed percentage or sum for a period of time set-out under the contract, for the purpose (in theory) of providing a form of surety in respect of works defects. The period between the first retention deduction on a contract and final release of retention held is often if not usually measured in years. The longer retention is held and owed, the greater the risk of delayed or non-payment when it finally becomes due. Customer insolvency and spurious or incorrectly allocated defects are common causes behind late and non-payment.

The issue of retentions is well documented and at this point I am reminded that back in 2014 NSCC conducted in partnership with FMB, a payment survey, which involved 719 respondents from within the specialist contractor sector. The subsequent report titled “Credit where Credit isn’t Due”, revealed that approximately £198 millions of retention held was overdue and approximately £54 million had to be written-off. NSCC has now moved on to become part of Build UK, which continues to campaign against retention as a vertical issue for the construction industry, with the aim of “implementing an industry-led roadmap to phase out the use of cash retentions in construction by 2023”.  But that’s 5 years from now and may or may not happen and I wonder what the retention held, overdue and write-off position is today, 4 years on from the NSCC/FMB survey in 2014 and after what has been a considerably more active period for specialist contractors in the meanwhile? And I also wonder what effect the demise of Carillion is having on the amount of retention having to be written-off this year – thankfully nothing for Bracknell Roofing but I sincerely feel for anyone legitimately owed retention that will see very little if any of it land in their bank account.

Latterly 60 trade bodies across a broad spectrum of the supply chain have come together in support of the Aldous Bill to reform retentions. Hopefully this will result in more urgent, effective and definitive improvement in the rules and process around cash retentions, particularly where customer insolvency is concerned. The suggestion of having retention accounts held in trust seems a very logical solution to the insolvency issue but I wonder how this might work in the event of a simple dispute as to alleged works defects or quantum owed? Would it make the collection process more or less complicated? Some food for thought, which hopefully the Aldous Bill might deal with.

Alongside retentions is the issue of contract set-off clauses. These enable customers to contra charge live contracts with claims against legacy projects for alleged latent defects and so on, which begs the questions why is this necessary given the purpose of retention and is this a fair ‘safety net’ or just another opportunity to pass on cost fairly or otherwise? Don’t get me wrong, I can see the customer’s side on this issue but these clauses nevertheless cause more potential for payment dispute.

The up-shot of all of this for Bracknell Roofing has resulted in significant investment of money and resources in developing our people, systems and customer base but the job of getting paid in full and on time remains a constant challenge and we rise to that challenge every day. We may never quite reach the ‘pot of gold at the end of the rainbow’ but I learned some extremely valuable lessons in my first few weeks as a roofing contractor and I am surrounded by some excellent people, so we are well organised to deal with the challenge. That said specialist contractors need all the help they can get and in my opinion the bodies that represent construction trades, could, should and must do more to achieve the ultimate goal of fair payment for all.

www.bracknellroofing.com

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