Trade Credit Insurance Still Vital Due to Late Payment Construction Culture
Smaller construction businesses continue to face potential cash-flow issues, if they do not have trade credit insurance in place. Statistics show that Britain’s two largest construction contractors, Balfour Beatty and Kier, still both take over 50 days to pay their subcontractors’ invoices.
Since July 2018, it has been a legal obligation for UK contractors to reveal their payment data and allow it to go on public record. Seven months ago, Balfour Beatty and Kier paid suppliers after 54 days. Now, in February 2019, Balfour reveals it is paying after 50 days and Kier is settling after 52 days. The slight reduction is nowhere near the level that the Government wishes to see, as it tries to push a prompt payment ethos in construction. That is do-able. Persimmon, which was paying after 50 days, is now settling invoices within seven.
Large businesses, defined as either a company or LLP with at least two of the following – a turnover of at least £36m, £18m or more on the balance sheet, and/or 250 employees – now have to make their payment record known twice-yearly, within a month of their full and half-year reports.
In a post-Carillion era, the National Federation of Builders (NFB) seems unwilling to accept Kier’s view that sub-contractor payments are delayed because of slow payment to Kier from its end-clients. It rejected both this assertion, and that of low margins in construction playing a part, last October.
Naturally, the Government wishes to prevent another major collapse and the resulting domino-effect that spread through the construction economy when Carillion went under. Consequently, last November, it stated that there could be a Government ban on awarding contracts to companies not paying suppliers within a reasonable time period.
Parliamentary Secretary of the Cabinet Office, Oliver Dowden, referenced a new Autumn 2019 prompt payment initiative, that would set such a process in place. This decision follows MPs meeting with subcontractors as part of a consultation process and hearing of their fears that, if they did not accept the late payment culture adopted by top-tier contractors, they would win no work from them.
In the meantime, smaller contractors worried about late payment do have a solution at hand, if they turn to Trade Credit Insurance. This type of insurance keeps cash flowing through the business, by paying the insured policyholder’s invoices on time. It safeguards them against any future insolvency of clients by doing this, enabling the insured business to grow with confidence and not be hampered or held back from investing in itself, just because invoices are not being paid.
Many Carillion subcontractors were able to survive the giant’s collapse thanks to having Trade Credit Insurance in place. There is a good lesson to be learned there. If you wish to find out more about how such insurance protection could also help you, please get in touch.