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Late payment woes show urgency of Time for Change response

Nearly a quarter of construction SMEs say late payments have put them at risk of going bust in the past 12 months, according to new research from payment software firm Tungsten.

Its survey found that 24% of SMEs were in danger of being wound up because of late payments in the year to October 2015.

Thirty-two per cent of respondents said payment issues had worsened over the previous 12 months, with 42% seeing no change and only 26% saying their situation had improved.

It also revealed that 70% of SMEs surveyed approach their bank first when experiencing cashflow problems, while just 14% looked to alternative sources of funding.

It comes on the back of data from the British Banking Association, published last month, which showed that lending from high street banks to construction firms was down by an average of £207m for each of the six months to September this year.

This was significantly below pre-recession lending levels, with the six months to September 2007 seeing lending increase by an average of £377m a month.

Software firm Textura, meanwhile, published research in September showing that more than a third of firms were waiting more than 60 days for payment after an invoice was raised.

Broken down, 34.2% of main contractors said they waited more than 60 days for payment, while among subcontractors that figure was 26.9%.

Despite late payment being a continuing cause for concern among SMEs, only 22% of respondents to Tungsten’s survey had heard of the Prompt Payment Code, set up by the Labour government in 2008 to help raise standards in payment processing.

Tungsten chief executive Richard Hurwitz said: “While all small businesses experience lean months, construction firms are especially vulnerable to cashflow problems as the industry often sees sudden spikes in demand, with more projects during the summer months.

“This seasonality can leave businesses scrambling for cash to pay for additional manpower and materials, which creates instability and makes it difficult to prosper. This could worsen if companies are forced to turn away work because of a cash shortage.

He added: “It’s worrying that so many businesses still feel under immense pressure despite legislation being put into practice.

“In hard times, they need more guidance and funding options if they are going to thrive.”

In July, the government announced that it would appoint a small business commissioner in a bid to change the culture of late payments and unfair practices, as part of its strategy to provide support for SMEs in disputes with larger companies.

H&V News’ Time for Change campaign is continuing to urge everyone in the industry to write to their local MP, using the template provided or their own version, to ask them to pledge their support to have retention funds placed in trust accounts to avoid them being lost or used to fund other activities.