ACE steps up effort to tackle late payments

Henry Kerali
05 June 2015

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ACE is redoubling its efforts on tackling late payments with its members by developing new guidance tips, helping ensure clients pay suppliers on time.

The late payment culture, seen as a contentious issue for industry in recent times, has placed considerable strain on UK businesses. For SMEs in particular, pursuing late payments has taken its toll, which experts say, is hindering their overall growth.

“Reasonable payment practice would enable the industry to substantially increase its size with no further financing by enabling firms to utilise more of their existing capital in growing their businesses” - Stephen Beales

“Right now, ACE is putting together tips for its consultant members to get their houses in order,” said ACE’s Group Legal and Compliance Director, Dwight Patten. “We want our consultants to administer their own contracts to reduce the risk of clients or contractors validly delaying a payment”.

Patten said ACE is also helping members to understand the technical aspects of getting paid in construction law. This, he said, would better prepare members to engage with clients and consultants. However, Patten warned, some members may have to take legal action over late payments. In such cases, ACE or one of its legal affiliates will be able to provide further guidance and advice, he said.

80 day delays

When looking at the time in which consultants are paid, late payments is a problem that does not appear to be improving. According to an ACE Benchmarking survey carried out in 2014, which analyses the performances of member firms, results show both large and small businesses wait 80 days on average to receive payments. That is despite suppliers agreeing, in some cases, to more favourable terms with contractors.

“My personal view is that this is much too long,” said Stephen Beales, Chair of ACE’s Legal and Commercial Group. “Reasonable payment practice would enable the industry to substantially increase its size with no further financing by enabling firms to utilise more of their existing capital in growing their businesses”.

“We want our consultants to administer their own contracts to reduce the risk of clients or contractors validly delaying a payment” - Dwight Patten

However, the fact remains some firms do not have the cash flow to pay suppliers on time, which is a growing problem. There is also the added challenge of suppliers not wanting to “rock the boat” with clients and contractors when pursuing the money they are rightfully owed.

Currently ACE is participating in consultations and discussions with the Department for Business, Innovation & Skills (BIS) to discuss late payments and best practices. Furthermore, Patten says the Construction Leadership Council, an established partnership between government and industry, has already set the construction industry the aim of achieving a 30 day payment cycle by 2018, with a 45 day target effective in July later this year.

“ACE is aligning itself with the Construction Industry Supply Chain Charter to move toward 30 day payments,” said Patten. “This is important because investment in social and economic infrastructure is essential for growth and all that depends on a well-financed industry.  In this sense, our only criticism is the delay by industry stakeholders until 2018 in moving to a 30 day period as a norm, when in practice this could and should be implemented now.”

Creating transparency

There are a number of legislative initiatives and codes of practice, which Patten says are intended to tackle the late payment culture.

One such initiative is the Public Contracts Regulations 2015. The new regulations, which came into effect earlier this year, contains provisions regulating payment terms under public sector contracts. In the new regulations, contracts must now contain a provision that payments be made within 30 days after the invoice has been validated. Furthermore, validation must be carried out promptly.

There must also be transparency on the part of public authorities to disclose whenever payments are made.

“There are some points to clarify as to how this will work, but it does create a potential remedy for members who aren’t paid on time,” Patten said. “It also sets a clear guide to public authorities what they should be doing. We should ideally move this direction in relation to business to business contracts as well.  We need a more collaborative industry if we are to achieve the aims of the 2025 Construction Strategy.”

However, the requirements in the Small Business, Enterprise & Employment Act, enacted earlier this year, could also be helpful for UK businesses. The new law, which affects only larger undertakings, requires greater transparency in payment practices between businesses.

Larger businesses will be required to publish information about their payment practices every six months. Patten said that while the half-yearly report might initially seem burdensome for some businesses, it could benefit the industry in the long-term.  

“If this becomes the organisational norm, the information could be useful for the overall conversation around improving transparency and efficiency in the industry, but particularly the payment culture.”