The latest report from Bibby Financial Services looks at Construction SMEs in the UK and highlights that many of these businesses suffer from payment issues. The Planning for Growth report was produced by Bibby Financial Services in conjunction with the Vinden Partnership who are a multi-disciplinary firm of management consultants with a 21 year track record of providing innovative services to the construction, engineering, banking, asset based lending and insurance sectors.
Many industries face the challenge of late payment, this is irrespective of the sector the business operates in. However, late payment problems have a massive impact on the construction sector with the issue a particular problem for subcontractors undertaking work on multi-year projects with high material and labour requirements.
Prompt Payment Code
Attempts have been made to improve payment terms in the construction sector with the introduction of the Prompt Payment Code and Construction Supply Chain Payment Charter, however, both schemes have come in for criticisms from the construction sector and their worth has been questioned. Many in the industry feel it’s too easy to ignore both of the schemes.
Bad debt is further problem for many smaller firms, and findings show that 70.5 per cent of businesses have suffered bad debt over the past three years, with the average sum written-off standing at £30,465.
Payment not guaranteed
Subcontractors often work on contracts where completion dates are one, two or even three years down the line and regularly, they know they won’t get paid until the entire project is completed. But even then payment isn’t necessarily guaranteed.
Many of the businesses have suffered bad debt, which have hindered their ability to pay suppliers and workers and suppliers. Bad debts have often forced viable businesses to close. Figures also reveal that over half of businesses (59 per cent) say they don’t always receive the amount they have invoiced for but dispute resolution, litigation, arbitration and complex contract law all require significant investment, which smaller construction companies do not have access to.
Back to growth
Despite the problems caused by bad debt, the construction industry is making its way back with evidence that many small and medium sized firms are planning for growth. The report highlights that the pipeline of work looks relatively healthy compared to previous years and Parliament has indicted that it will look again at the availability of finance for construction SMEs.
The Small Business, Enterprise and Employment Bill which is currently passing through Parliament contains plans to nullify ban on invoice assignment clauses, which currently act as a barrier to growth for many SMEs in the construction sector. This is a welcome move and, if passed, will open-up a source of funding sometimes prohibited for subcontractors and smaller firms.
BIBBY FINANCIAL SERVICES
As the UK’s leading independent invoice finance specialist and a trusted provider of cashflow funding to over 7,000 businesses, Bibby Financial Services provides a range of finance solutions for companies in over 300 industry sectors.
For more information about Bibby Financial Services’ cashflow solutions, visit: www.bibbyfinancialservices.com or call 0800 91 95 92.