Property giants keep small construction firms waiting

Small construction firms in the UK are being forced to wait nearly two months to receive payments from large property developments, according to new research.

This is placing extreme pressure in the cash flows of the sub-contractors that are working with the 20 largest developers, according to Funding Options.

Failing to pay invoices is limiting the growth prospects of the smaller firms and is even threatening their long-term survival in some cases.

For sub-contractors operating as bricklayers or carpenters for example, they require the swift payment of invoices in order to budget effectively and plan growth.

A failure to receive payments makes their financial management difficult and places unnecessary pressures on their businesses.

To further their problems, the construction industry has experienced a slowdown since the second quarter of 2015, meaning their options for further expansion are somewhat limited.

A failure to overcome the issue could result in insolvency or bankruptcy, although undertaking options reviews could help find a solution.

According to Funding Options, an increasing number of smaller construction firms are needing alternative finance options in order to fill gaps in their cash flow.

Among the issues noted by smaller firms are the ability to bid on future work and to pay wages on time – both of which stifle growth.

The research suggests that major developers sit on money rather than paying smaller firms – it is claimed larger companies are paid in 39 days on average, nearly two weeks faster than they pay sub-contractors.

Payment delays are on the up too, as it took an average of 48 days for developers to pay invoices in 2014.

The issue is more pressing given that it will likely impact on the Government’s ability to meet demanding targets for the development of one million new homes by 2020.

Smaller firms would be entitled to charge interest or other costs should their payment terms not be fulfilled, but the study suggests many do not as they fear the impact it would have on their ability to win future contracts.

By Phil Smith

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