• The Reasons For Non-Payment In The Construction Sector

    A recent study by Bibby Financial Services identified the reasons for non-payment in the construction sector.

    On average the survey found that amongst the construction firms surveyed, they wrote off nearly £51K, over the last 3 years, where customers either failed or were unwilling to pay.

    Late Payment

    Of the 250+ construction subcontractors that were interviewed, 27% said that "late payment" was the biggest threat, facing their business, over the next year. 

    The study went on to confirm that they had every right to be worried about late payment. It found that the average wait to get paid was 42 days, with 37% of respondents waiting 29 days+ to be paid. 9% were waiting 43 days, or more, to get paid.

    Non Payment In The Construction Sector

    Even more worrying was that, on average, these sub contractors had written off almost £51K of bad debts, over the previous 3 years, almost 70% more than the value from Bibby's 2014 construction sector survey.

    The top 3 reasons for not receiving the full amount from a contract, were as follows:

    1. 16% - unclear briefs from the main contractor

    2. 16% - changes to the scope of work

    3. 13% - cash flow issues of the customer

    The obvious observation is that in many cases, these issues could have been avoided.

    Unclear Briefs

    Clarifying the brief up front, perhaps consulting with a QS if required, may have averted some of these problems. The sector tends to be highly contractual, but many subcontractors don't feel able to request contractual changes, that could improve their position. The consequence to not addressing this issue, could be significant non-payment, as the study suggested.

    Changes To Scope Of Work

    Again, getting changes agreed in writing may run counter to the culture within the sector, but it could help a subcontractor avoid these significant bad debts as described above. Additional work that arises during a project is great, but you need to ensure you get paid for it, otherwise you are working for nothing.

    Cash Flow Issues Of Customers

    You may think that there is nothing that can be done about this but that is not the case. Bad debt protection (non recourse) can protect your business against the insolvency of customers.

    If you find that a customer is having cash flow problems, you could suggest construction finance to them as a way of releasing cash from unpaid debts, and improving their working capital position.

    Lastly, our free guide to managing your own credit control may help you etablish a robust chasing process, and to overcome late payment excuses.

    Getting Bad Debt Protection And Construction Finance

    If you need specialist finance for the construction sector, of help protecting against bad debts, please get in touch or call Sean on: 03330 113622.

    Source: Bibby Financial Services - Subcontracting Growth Survey between 21/09/16 and 06/10/16. 250+ respondents from the UK across different sub-contracting trades.

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