Late payment is causing huge stress to businesses, says CIPS group CEO Malcolm Harrison © John Keeble/Getty Images
Late payment is causing huge stress to businesses, says CIPS group CEO Malcolm Harrison © John Keeble/Getty Images

Late payment threatens climate goals of construction sector

15 November 2019

Construction companies will struggle to meet climate change goals due to a “late payment epidemic”, according to the Building Engineering Service Association (BESA).

BESA said cash flow problems could cause supply chain disruptions that would prevent firms reaching sustainability targets.

John Norfolk, president at BESA, said: “Late payment is draining the UK construction industry of the skills and expertise it needs to deliver our climate change goals.  

“It is all very well competing to set a more ambitious net zero carbon goal than your political rivals, but how are you going to turn ambition into reality if the supply chains needed to deliver the projects are continually disrupted by poor cash flow and insolvencies? 

“Getting the built environment right for the future will deliver an economic dividend immediately and put right one of our country’s great social injustices – the fact that people are forced to live, work and raise families in sub-standard buildings.”

Against the backdrop of the General Election, BESA has called on an incoming government to stand up for small businesses under pressure from larger firms up the supply chain. 

BESA said compliance with the Prompt Payment Code should be compulsory and the small business commissioner should have the power to levy fines for “persistent late payments” in the construction sector.

BESA said the government must prioritise the recommendations around building and fire safety that resulted from the Grenfell Tower Hackitt Review and Raising the Bar report. A building safety regulator should be appointed.

Speaking at the CIPS Annual Conference in London on the Grenfell Tower tragedy, Duncan Brock, group director at CIPS, said: “When you cut corners in construction you are compromising safety.”

A survey by BESA and the Electrical Contractors' Association (ECA) revealed that pressure from late payments has led to nine out of 10 construction business owners suffering mental health issues. 

Nine in 10 (92%) respondents said they had experienced payment issues and 65% said they were paid late “frequently or very frequently”.

The continued “systemic abuse of cash retentions” has left SMEs in debt and going out of business, said BESA. It recommended the government implement a retention deposit scheme, under which retentions are deposited with a third party.

Rob Driscoll, director of business at the ECA, said: “The next government must take immediate action on cash retentions and other payment abuses, by legislating for change. 

“Doing so will help to address the serious findings in this survey and actually help construction to achieve its aspirations of delivering excellence for clients and being an industry that’s attractive to new talent.”

Malcolm Harrison, group CEO, CIPS, said UK government data, analysed by CIPS, showed businesses were “not always mindful of the needs of their suppliers when it comes to cash flow” and on average large businesses pay almost a third (31%) of their invoices late.

“Delayed payments, lost payments, payments in part, cause huge stress to businesses and can activate thousands of insolvencies each year,” he said.

“It is a brave supplier, especially at an SME level, that questions their large customer’s long payment terms or asks why payment has been delayed yet again, so big corporates should take the lead in good practice and pay promptly.”

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