By Paul Wilkinson, Director, pwcom.co.uk
To many in the construction industry, late payment is a necessary evil. We almost take it for granted that some companies – often main contractors – will insist on long payment periods, but this credit can be abused as they find reasons to delay settlement of invoices until it suits them. This all adds to the cost of delivering construction projects, undermining the efforts of the UK government and other clients to achieve greater value from their supply chains.
Textura recently conducted a survey looking at the impacts of late payment. Opinions, which formed the survey results, showed that contractors often use the same excuses for not paying on time or not paying at all, such as; the director is on holiday or they haven’t received an invoice. It is also thought that main contractors are leaning on their supply chain as a banking facility to command growth and bigger companies use late payments as a way of free financing from small businesses. As a result, many subcontractors have responded by inflating their tender prices to cover the costs they incur when their customers pay late. The survey was completed by over 100 respondents and, found that on average, 4 per cent is added to costs to cover late payment. The subcontractors surveyed did say that they would discount prices by an average of 2.35 per cent if contractors paid promptly – within 30 days. I fully believe that ‘digitising’ construction payment would be beneficial. As the industry is digitising, optimising and integrating collaborative design and construction processes (through BIM and other techniques), why isn’t it simultaneously digitising procurement and payment? It doesn’t quite make sense that we can manage complex 21st century logistical challenges, such as offsite fabrications, but many suppliers are still victim to out-dated construction payment practices.
While the UK has raced ahead with its BIM adoption drive, a quiet revolution has been occurring in the US relating to payment management. By streamlining and automating large parts of their payment processes, companies have managed to double revenue without recruiting more staff, save the annual equivalent of two members of staff and save project managers and the accounting team 210 man-hours each month.
While late payment is one of the most significant issues facing UK subcontractors, the US have shown that it can be tackled. Significant benefits might be achieved by forward-looking UK construction businesses that in turn could help add value to their construction industry clients, helping achieve the targets set out in the “Construction 2025” report.