The SME Confidence Tracker Report from Bibby Financial Services this month (August) shows the number of smaller companies suffering from late payment rose by nine percentage points in the second quarter of 2015 against the same period in 2014.
That means 51% of SMEs are now waiting more than 30 days for payment. And guess what? The construction industry remains the worst culprit with 55% of smaller firms waiting more than 30 days to be paid, up 11 percentage points against the same period last year.
Barry Ashmore, co-founder of StreetwiseSubbie, a professional services organisation founded to support and advise specialist contractors that has made it its business to champion better payment terms for construction's specialists, is not happy.
He says: “We’re going backwards in this country and the government and so-called industry leaders know what is going on but either don’t care or are too mired in self-interest to do anything about it.
"Talking about 'working towards' paying in 30 days by 2018 is an insult which is exposed by the following clause taken from a standard sub-contract form in widespread use in 1971 (Form published by BEC Publications – 1971 edition, revised July 1978. Form approved by: The Building Employers Confederation, The Federation of Associations of Specialists and Sub-Contractors and The Committee of Associations of Specialist Engineering Contractors):
'The first payment shall be due no later than one month after the date of commencement of the sub-contract works or, if so agreed, of off-site works related thereto and further interim payments shall be due at intervals not exceeding one month calculated from the date of the first interim payment. Interim payments shall be made not later than 14 days after the date they become due.'
“If we could agree to pay within 14 days 44 years ago, why can’t we pay within 30 days today? Take the Specialist Contractors' money out of the UK construction industry and it would be on its knees within a matter of days. Fact.”
He says specialist contractors are propping up the UK’s cash strapped construction industry and financing growth by acting as trade creditors to the large main contractors.
According to StreetwiseSubbie, the financial landscape for UK specialist subbies remains bleak. Not because of a lack of work but because certain main contractors find every way possible to delay payments and pay less than is owed, simply to free up their own cash flow.
Barry says: “By paying less than is owed and withholding payment for up to 120 days in some cases, some of the UK construction industry’s main contractors are using the money they owe subcontractors to finance their own business growth. It’s just plain wrong.
“Not only is this practice unfair and unjust, it is destroying the heart of the industry and biting off the hand that feeds it!
"As a direct result of late and withheld payments, six construction firms are going bust every day (Office of National Statistics’ figures: in the 12 months ending Q4 2014, the highest number of liquidations was in the construction sector at 2,317, with 578 compulsory liquidations and 1,739 creditors’ voluntary liquidations).
"That is scandalous and the pathetic attempts to fix the problem – such as the Construction Leadership Council’s voluntary agreement where signatories agree to pay all suppliers within 30 days from 2018 – amounts to putting a sticking plaster on a gaping wound.
“Specialist Contractors are consistently told: accept our onerous terms or you don’t get the work.
"Accept crippling payment terms or lose out on the business? That’s what I call a real rock and hard place. Our subbies have nowhere else to go and no other choice but to accede. It’s a disgrace.
“The evidence is clear and it’s not just the team here at StreetwiseSubbie that is concerned. BIS Research Paper Number 118 'Trade Credit to the UK Construction Industry: An Empirical Analysis of Construction Contractor Financial Positioning and Performance’ from July 2013 stated as one of its conclusions: 'Tier 1 firms (main contractors) were found to be net receivers of trade credit, whereas Tier 2 firms (subcontractors) were found to be large net providers of trade credit. In other words, it is highly likely that trade credit flow from Tier 2 to Tier 1 contractors substantially exceeds in size the trade credit flow from suppliers outside the construction industry to Tier 2 contractors'."
- The Government is currently looking at ways to speed up payments to SMEs but the best it has come up with is to 'name and shame' late payers, wghich has left a lot of people scoffing. A consultation period on its proposals has just come to an end. You can read more about that here.