The payment delay crisis has worsened for small construction businesses in the last year, exacerbated by Carillion, says Funding Options, the online business finance supermarket.
Funding Options says that suppliers now have to wait over 42 days on average for invoices to be paid, up from just over 40 days on average five years ago in 2013/14*. Construction businesses are extending delays in paying suppliers which can threaten the whole supply chain’s financial stability, putting jobs at risk and threatening the Government’s ambitious housebuilding targets.
Construction supply chains often include many small and medium sized businesses with tight profit margins, which can find it difficult to deal with payment delays.
Funding Options explains that many large businesses in the construction industry are able to stipulate long repayment terms to suppliers. Many smaller suppliers to Carillion, for example, had to agree to 120 days for payment. Following Carillion’s collapse in January, these businesses received almost none of the payment they were owed. Some estimate they will receive at most a penny in the pound.
Payment delays are contributing to a high level of insolvencies in the construction sector. 2,633 construction businesses went insolvent in 2016/17**, rising 8% from 2,447 in 2015/16.
In June of this year, a new bill has been introduced in Parliament, which aims to address late payments for SMEs through introduction of a deposit scheme.
Conrad Ford, CEO of Funding Options, says: “A single late payment can be an issue even for larger and more successful firms, and worsening delays could create more insolvencies.”
“Carillion’s collapse sent shockwaves through the industry, affecting smaller suppliers who will now never get paid what they are owed. Construction businesses have high overheads and labour costs, and many cannot afford to wait for payment for lengthy periods of time.”
“It is crucial that construction companies understand all the options available to them for the funding they require to minimise the impact of late payments.”
“There is a variety of alternative lending available to small businesses seeking funding, such as invoice finance, asset finance, crowdfunding and peer-to-peer lending. This abundance of choice can mean it can be difficult to know which sort of finance is the best fit for a particular need, or who is out there to provide it.”
“At Funding Options, we’re able to scour our extensive panel of lenders across the spectrum to put together a funding package for a business, no matter how complex, urgent or challenging its situation.”