Late payments damaging SME suppliers in the construction sector

With late payments a significant business survival risk, Tony Duggan examines what this means for SMEs and what companies can do to combat it.

In July, the government launched their review into employment practices. Known as the Taylor Review, it concluded that all work in the UK should be “fair and equal”. The focus was on ensuring there is a level playing field for both small and large businesses. However, the Taylor Review arrives at a time in which SME confidence continues to be knocked, according to the latest Voice of Small Business Index. 

In fact, business confidence in the construction sector is in particular decline, falling six points in Q2 of this year.  Small business confidence is dropping and the ever-persistent problem of late payments is exacerbating the situation.

Those in the construction sector are amongst the hardest hit. Whether they be a scaffolding supplier, joiner or roofer, it is likely that late payment has negatively impacted their business at some stage. Make no mistake, this is an age-old problem and for too many this is the way it’s always been. Nothing is more demoralising than doing a day’s hard work and waiting weeks to be paid and the impact on relationships with clients is now starting to be tested.

Recent research conducted by Crossflow Payments, in conjunction with YouGov, highlighted that £22.6bn of construction SME annual turnover is tied up in late payments. While nearly half (46%) of construction SMEs who routinely receive late payment receive it late by 10 days or more.

Habitual late payment is harming the ability of suppliers in the construction sector to expand and grow. One in five (21%) said that if payment terms improved, they would invest in sales and marketing, while an additional fifth (21%) would hire extra staff.

Late payment is a problem that impacts the entire construction supply chain. For example, if a housebuilder pays a builders merchant late, the suppliers to that builders merchant may also be paid late as a result, and that, in turn, may hurt their supply chain. The consequences of late payment can be severe for the entire supply chain.

But late payments do not have to be a permanent fixture in the life of a business. There are new technology-enhanced supply chain finance solutions that can ease the burden it has on construction suppliers and their customers and help them grow.

Platforms like Crossflow Payments are easy to implement and require no changes to existing IT infrastructure, upfront fee or personal guarantees. Finance on approved invoices can be accessed within 48 hours at competitive rates and easier than traditional invoice financing methods such as factoring.

However, the solution lies with the industry itself. With new services, there shouldn’t be the need for late payment. The need is to change mind-sets and embrace new, innovative solutions to solve the late payment problem. Ultimately, this could help them evolve and shore up confidence regardless of the turbulent times around them. Businesses have to adapt to changes in the economy and business environment, and all businesses need to look for better, new technology solutions rather than stick to the old services offered in the traditional financial services. 

Tony Duggan is the chief executive and co-founder of Crossflow Payments.