Smaller firms in the UK construction industry are continuing to suffer from late payment from their suppliers as more businesses than any other sector entered liquidation in the first three months of 2015.
According to new research by Tungsten Corporation, 2,250 firms began the process of selling assets in Q1 this year, while almost a quarter (24%) of smaller construction firms surveyed reported late payments had placed them under threat of being unable to continue trading.
The research also revealed that 42% of firms felt that the situation had not improved in the past 12 months and 32% suggested it had become worse. Only 26% said late payments posed less of a problem in the past 12 months.
Richard Hurwitz, chief executive at Tungsten, said: “While all small businesses experience lean months, construction firms are especially vulnerable to cash flow problems as the industry often sees sudden spikes in demand, with more projects during the summer months.
“This seasonality can leave businesses scrambling for cash to pay for additional manpower and materials, which creates instability and makes it difficult to prosper. This could worsen if companies are forced to turn away work because of a cash shortage. It’s worrying that so many businesses still feel under immense pressure despite legislation being put into practice. In hard times, they need more guidance and funding options if they are going to thrive.”
The findings follow a series of Government measures intended to tackle the problem, including the introduction of the Construction Industry Payment Charter, which saw major contractors, clients and the government commit to paying their suppliers within 30 days, from 2018. The agreement organised with the Construction Leadership Council, committed contractors and clients to pay their suppliers within 60 days. From June 2015 this was reduced to 45 days and from January 2018, it will be 30 days.
However, just 22% of respondents had heard of the Prompt Payment Code (PPC), a voluntary scheme launched in 2008 to help raise standards in payment processing in the UK. The PPC has more than 1,800 signatories across the public and private sectors, and is administered by the Chartered Institute of Credit Management for the Department for Business, Innovation and Skills.
With measures such as the PPC yet to take hold in the industry, the research found that construction firms are being forced to attract finance from a wide range of sources. Around 70% of SMEs surveyed turn first to their bank when experiencing cash flow problems, while just 14 per cent consult alternative sources of funding.
Mr. Hurwitz continued: “With businesses finding it increasingly difficult to access traditional routes to finance such as bank lending, other sources of capital such as invoice finance, crowd funding and peer-to-peer lending have surfaced as viable means to ease cash flow pressures. The good news is e-invoicing technology now enables firms to effectively sidestep any delay, cost and uncertainty they may have experienced with these alternatives in the past
“The technology is already there to facilitate change, so we call on Government and industry leaders to support more innovative solutions, which will enable construction companies to worry a lot less about late payments and focus instead on the growth that has made them a building block of the UK’s wider recovery.”
