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A second report has highlighted the poor payment practices of large companies and the impact it has on smaller suppliers. Last week the FSB reported on the shortcomings of supply chains in the private sector and urged government to act. Now a report by Bibby Financial Services looks at subcontractors in the construction sector and reveals that late payment is identified as the number one threat to their business survival. 250 UK subcontractors working across a variety of trades were surveyed in April 2018. Participating subcontractors had an average turnover of £2m and less than 250 employees.
According to the report, subcontractors are waiting for an average of 44 days to be paid in 2018, compared with 42 days in 2016. Two-fifths of businesses (40%) - are paid between 29 and 42 days after billing, and one-fifth (20%) receive payment between 43 and 55 days. However, more than a quarter (28%) wait more than 55 days for payment.
When asked about threats to their business over the next 12 months subcontractors cite late payment as the the greatest worry and 82% say they would support mandatory payment terms for all public sector contracts.
Bad debt is a significant problem. More than half (53%) say they have written-off money as bad debt in the last 12 months, with an average of £16,000 being lost. The reasons given were due to customer insolvency, non-payment or protracted default.
Specialist Finance Director at Bibby, Kash Ahmad, commented:
"Bad debt is a serious issue for many construction businesses and, across the entire sector, more than £2.8bn is written-off each year, representing a significant economic leakage. Bad debt occurs due to insolvency in the supply chain, protracted default or dispute and the issue is particularly challenging for smaller firms that have already footed the bill for raw material and labour costs. This places a massive strain on these businesses, sometimes even causing viable firms to fold. For many, bad debt is the hidden cost of doing business."
The report follows research from My Credit Controllers that showed that signatories of the Prompt Payment Code had measurably poorer payment practices than average firms
Samantha White, CEO of My Credit Controllers said:
"The collapse of Carillion has highlighted major issues in the construction sector such as endemic late payment, and bad debt. There are ways for businesses to protect themselves. Credit control is available as an outsourced service and our online debt collection service is available to help with overdue invoices and late payments."
You can read the full report here.
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