Longer payment delays a headache for UK construction firms
Construction firms have waited longer for payments during the past year than in previous years, according to new analysis from Funding Options.
The research revealed that firms in the sector had to wait an average of 69 days for payment of invoices in the past 12 months, compared to 64 days in 2014-2015.
That 8% increase can potentially have far-reaching implications, as payment delays can have an impact across the supply chain.
Given that 2,557 construction firms entered insolvency in 2016, slow payment of bills was recorded as a major reason for that.
Issues are particularly paramount when firms experience delayed payments at points when large expenditure is due – such as to cover tax or rent.
A domino effect can then occur in the supply chain, as firms withhold payments to manage their own finances.
For smaller construction firms, this may put jobs or the business itself at risk, depending on the scale of money owed – should an SME’s main client delay payment for any length of time, it could potentially increase the risk of insolvency.
High overheads relating to costs for materials and labour also need to be factored in, as this makes cash flow management even more essential.
If a construction firm is facing difficulty, directors or owners should seek appropriate advice from corporate insolvency practitioners.
From advising on payment terms and late payment processes through to sorting sub-contractor delays or filing late accounts, there may be a range of solutions that can improve their situation.
Funding Options CEO Conrad Ford said that construction firms often have plenty of alternative finance options that can help provide the liquidity they need, although he warned many leaders are often unaware of what is the best fit for them.
Data from IHS Markit shows that the purchasing managers’ index for the construction industry rose in October, jumping from 48.1 in September to 50.8.
Any mark below 50 represents contraction in the sector, while the October figure was also considerably above industry expectations.
The analysis firm’s associate director, Tim Moore, described housebuilding as “the sole bright spot in an otherwise difficult month”.
He added that large areas of the construction sector are currently “stuck in a rut” and blamed fragile demand and reduced tender opportunities.
By Phil Smith