The Contentious Issue of Payment Practices in the Construction Industry

Late payments have been a feature in blogs on the Small Business Commissioner website in the last few months.  The construction industry in particular seems to have big issues and I wanted to know: What is the impact on the wellbeing of SME’s in this sector?

During the course of my research I interviewed SME construction business owners and workers, accountants and debt collectors, to get a balanced view. What I found out is both shocking and alarming.

Impact of late payment

Whilst the inevitable result will be some companies going out of business because they are unable to survive the cash flow roller coaster, it is also driving other behaviours that are undesirable.

  • Sub-contractors are becoming more discerning who they contract with, which will impact the skills shortage further and take the industry further away from delivering the UK’s ambitious infrastructure, housing and commercial needs.
  • Some business owners are winding up their medium sized businesses because it is no longer tenable to keep going. Instead they are being driven to working cash in hand.
  • All workers on civil development sites have to be card holders of the construction skills certification scheme but some companies admitted that rules are bent when projects were running late and penalty clauses were imminent. This will also impact quality, health and safety.
  • Companies borrow from the bank to shore up their cash flow but have to provide guarantees to the bank. If payment is not forthcoming then the bank will foreclose and the company will be forced to bankruptcy.

The Wellbeing Question

The general feedback was that of a set of business owners that are stressed, overwrought and lacking any reasonable recourse.

Modern man is faced with a prehistoric reaction to stress that enables an appropriate fight or flight response when faced with danger.  This response drains cognitive function and puts all resources towards fleeing or fighting.  Continuous anxiety and stress can lead to total burn out if not managed.

The construction industry statistics are bleak on the wellbeing front.  Nearly a 5th of all long term absences are due to mental ill health. The industry also has the highest suicide rate of any profession. There were 1,419 suicides by those working in skilled construction and building trades from 2011 to 2015. Of these, 1,409 were men and 10 were women. Ten per cent of all suicides in the UK happen within the sector and workers are 6 times more likely to die from suicide than from a fall from height. Injury on the job is also very common. (Source: Office for National Statistics)

Something has to change!

Industry-wide Lights on the Horizon

The Construction Leadership Council is still driving towards positive change for 2025 and “fair payment terms” is part of that campaign.

Build UK, the leading representative organisation for the UK construction industry, with its partners and stakeholders are campaigning to end cash retention practices and are pushing for comprehensive government legislation. They are also campaigning for an industry-led roadmap that will drive the cultural changes required to address the underlying issues of retention, while realising benefits for the industry, its clients and stakeholders.

Things you can do if you’re affected by late payment

Reputable debt collection agencies advise that having regular and open communication channels with your customer and being persistent and timely about chasing payments can make a difference.  In addition, ensure the person responsible for chasing any debt is also someone that has the opportunity to build beneficial client relationships from day one.

Having robust contracts and debt collection procedures that are clear and concise can also aid collection when it is needed.

Check the company thoroughly that you are about to enter a contract with.  Their payments rates might be listed in the Build UK Members’ Payment Performance or on the wider Government Payment Performance Reporting website.

Consider how you log and record issues.  Make sure you keep a snag list with updates on any subsequent actions and reviews by any parties.  Consider recording relevant phone calls.

If you’re affected by any of the issues and are feeling overwhelmed, you can find support through the NHS.

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