Taking action on late payments

Construction businesses could be amongst those to benefit if the recommendations of a cross-party parliamentary inquiry into the issue of late payments to small and medium-sized enterprises (SMEs) are adopted.

The inquiry, convened and chaired by Oldham East and Saddleworth’s Labour MP Debbie Abrahams, published 11 recommendations in July.

Ms Abrahams said that SME owners who had given evidence had demonstrated the “damaging impact” late payments had on their businesses, along with the emotional impact on owners and employers.

And she warned that business leaders needed to take more responsibility for tackling late payments. She said: “Until top CEOs, and their executive board members, make a decision to act ethically in business, and treat our small and medium-sized businesses fairly, this problem will persist.”

The inquiry document said that late payment was the most important issue to SMEs after access to finance, with data from payments specialist Bacs revealing that in 2012, SMEs were owed more than £36.4 billion in late payments. The report also said that construction and manufacturing businesses in the private sector were amongst the worst late payment culprits, according to the Federation of Small Businesses.

The report highlighted the devastating effect of late payments, with the story of one construction sub-contractor, who told the inquiry: “I lost my business of 25 years, after building it from nothing…late payments meant it was starved of cash flow and I had to put the business into administration. [It was] Due to a big main contractor…they were in trouble on a job and through their incompetence we were made to suffer.”

Among the inquiry recommendations was a call for a Construction Code of Conduct and to ensure that large companies did not intentionally delay payments to suppliers, the contractually agreed payment should be held in an independent trust.

Once all of the conditions for the contract have been met, the supplier should receive payment, with a Credit Ombudsman arbitrating in disputed cases. Other recommendations called on the government to:

  • Promote the adoption of good practice guidance for large companies in managing supply chains, including publishing performance data relating to payment-on-time to suppliers in audited annual accounts
  • Support SMEs in avoiding late payments through free financial management advice and/or training
  • Require all new government contracts to include pre-qualification questions on past payment performance, with payment history considered as part of the bidding process
  • Make fair payment a contractual requirement for new government contracts

At Palmers, we can advise construction companies on all aspects of commercial debt litigation, including deciding which procedure is most likely to result in the recovery of the money owed. For more information and guidance, please contact us.