Outstanding invoices leave smaller builders struggling

Outstanding invoices owed to construction companies is impacting smaller builders in the UK, warns new research.

Small UK business are now owed more than £586 billion in outstanding invoices, according to Lloyds Bank Commercial Banking. The lender’s latest Business in Britain report reveals that the average small business is owed more than £108,000 in unpaid invoices, an increase of 8 per cent since the last Business in Britain report in January 2016, with almost a third of firms (29 per cent) citing late payments as the biggest cause of cashflow problems.

The issue of late payments is likely to persist into 2017, with nearly a third (30 per cent) expecting more customers to require deferred payment terms in the next six months.

The problem is one that is particularly impacting the construction sector. Another new study from Funding Options shows that the UK’s 20 largest property developers now take 56 days on average to pay sub-contractors, up from 54 days last year, resulting in cash flow problems for smaller companies.

Funding Options cautions that the failure of major developers to pay invoices in good time is damaging their sub-contractors’ growth prospects and in some cases threatening their viability. Without swift payment of their invoices, small companies such as bricklayers and carpenters cannot budget effectively and face funding issues.

The problems are being exacerbated by a slowdown in the construction industry last year, says Funding Options. Indeed, the construction industry is more important than ever at present, as the UK attempts to rebound its number of new homes to correct an ongoing shortfall and meet demand. At present, the government has set a target of 1 million new homes to be built by 2020.

“The claim that big developers are sitting on the money owed to contractors is supported by the fact that large developers are paid by their own customers in 39 days,” says Funding Options’ report, more than two weeks faster than they pay sub-contractors.

Conrad Ford, CEO of the firm, adds: “Major developers feel they have a lot to gain from delaying payments, knowing that their sub-contractors would be hesitant to raise their issues for fear of losing out on future work. There seems to be only two choices for the suppliers: accept these slow payments or lose the business going forward. These kinds of problems also won’t help the Government in hitting the very demanding targets it has set for new home completions.”

Sarah McMonagle, policy director at the Federation of Master Builders, spoke to BBC’s Radio 5 Live this morning about the situation. She noted that new rules coming into force in April 2017 will require big companies to report twice a year on their payment performances.

“We are hoping that’s going to have quite a positive impact on naming and shaming the companies that are quite bad at doing this,” she told the radio station. “We do need some more stick from government in terms of changing behaviour.”