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Payment practices – are they really sustainable?



On 1 February, Build UK published information about how good its members are at paying their invoices. The organisation provides payment performance information on just over 100 of the industry’s largest companies.


Prompt payment is important, if the industry is to improve and advance. If funds don’t make it down the supply chain in time, how can smaller players survive, let alone come up with new ideas to improve efficiency and cut carbon? After all, there are three pillars to sustainability: environmental, social and economic.


The good news is that the average time taken to pay invoices by the top 43 contractor is 30 days, down from 45 days in 2018. However, the average among those 43 varies widely from 10 days reported for Amey to 49 days for Watson Jones. And just over a third of the 43 companies are still taking more than 30 days on average to pay.


These results may be somewhat skewed however, reports Construction Enquirer, since the percentages are worked out on the number of invoices rather than the value. So, an unscrupulous contractor could ensure that they pay smaller invoices within the 30-day timeframe, leaving big invoices longer and still managing to look good in the payment rankings.


When it comes to the 48 specialist contractors listed by Build UK, the figures are less good. The average payment time is 43 days, with three-quarters taking more than 30 days to pay on average and eight companies reporting an average of 60 days or more.


That doesn’t bode well for companies who are even further down the supply chain: the tier 3, tier 4 suppliers and beyond who must be waiting even longer for their payments. And the Build UK figures don’t reflect practice among the thousands and thousands of much smaller firms that make up the bulk of the industry.


Of the 4,370 UK construction firms who went out of business in the year to November 2023, 58% of the insolvencies were specialist contractors. Total insolvencies are 7% higher than a year ago and 37.9% higher than the year to January 2020, before the Covid pandemic.


On a brighter note, civils contractors accounted for a low proportion of insolvencies at 5%. According to Construction Products Association chief economist Noble Francis this is because activity in major infrastructure projects has remained strong and because public sector clients have been more reasonable about cost inflation and delays on site than clients in the private sector.


However, the immediate outlook is not looking to encouraging, says Francis: “The key concern near-term is that insolvencies are likely to rise even further in 2024 given new house building and RM&I (repair, maintenance and improvement) remain subdued plus the impact of labour and material costs whilst government announcements of pauses, delays and cancellations to infrastructure projects last year has not fully fed through yet.”


In such an environment, prompt payment becomes more crucial than ever.


The picture on payments may become clearer from 2025 when the laws on reporting are toughened up. Businesses will have to report on the value of invoices, including those paid late, and on disputed invoices. That could mean that companies fudging the figures now could see themselves falling down the rankings.


Clients and supply chain members should get a better view of who they should – and shouldn’t – work with.

 

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