In The News
Small and medium-sized businesses are owed £30bn in the UK. A recent parliamentary inquiry into the late payment of commercial debts has found that the manufacturing and construction sectors to be the ‘worst offenders’ in terms of late payments and poor treatment of suppliers.
MPs have recommended a shake-up in the construction sector, in the form of a construction ‘Code of Conduct’, which will be led by an independent adjudicator. Similar to the Groceries Code Adjudicator, this independent entity would be responsible for turning payment terms and conditions on their head.
‘Code of Conduct’ Suggestions
Some of the recommendations that have arisen out of the inquiry include:
- Eliminating the system of subcontractors ‘applying’ to be paid, rather than invoicing clients
- More transparency, with large companies being required to publish payment periods
- Excluding bad payers from public sector work
- All contractually agreed payments to be held in an independent trust, with payments being made to the supplier once all conditions of the contract have been fulfilled
The Benefits of Change
Many construction companies are reliable, but there will be some that give the rest a bad name – this happens in any industry. However, subcontractors deserve to be paid fairly and on time, like anyone else.
The recommendations aren’t purely in the subcontractors’ favour; large companies can also benefit from it. Subcontractors awaiting payment may have to take on more jobs in order to improve their cash flow. Economical speaking, cutting through the red tape and shortening payment waiting periods will have a positive impact on subcontractors’ cash flow, allowing them to focus more on each job.
It is hoped that new regulations will foster fair play between subcontractors and main contractors, to the benefit of both, rather than at the loss of one. Companies need to pay subcontractors fairly, but they also need to do this in the most financially-efficient way, so as to be able to keep paying subcontractors.
The Larger Picture
The results of the inquiry suggesting that large companies take too long to pay bills is a pressing problem, but it is not one that is restricted to the construction industry. Late payments are a problem endured by businesses and contractors around the UK. This problem is particularly pertinent with SMEs, as they may not have the resources to absorb the opportunity costs like larger corporations can. The efforts to improve payment conditions in the construction industry should be applauded, and – keeping in mind that there needs to be a system that works for all parties – should be investigated in other industries, too.