The Covid-19 pandemic has exacerbated the UK construction industry’s late payment problem, as firms battle pressure on their cashflow, according to research carried out by Lloyds Bank Commercial Banking.
More than two thirds (65%) of contractors that have seen a change in customer payment time since the start of the pandemic have experienced slower payments.
A quarter of businesses (26%) say it now takes their customers more than 30 days to settle outstanding invoices, with debtors most commonly citing cashflow pressures (33%) and late payments from their own customers (28%) as their reasons for paying late.
Meanwhile, almost a third (29%) of firms said it currently takes them more than 30 days on average to pay their own suppliers, with late payments from customers (24%) and cashflow pressures (21%) their most common reasons for not settling invoices on time.
As the sector continues to grapple with late payment problems, more than half (56%) of construction firms interviewed by Lloyds Bank said they are not a signatory to the Prompt Payment Code (PPC).
The code – introduced in 2008 – is a voluntary framework setting standards for payment practices between organisations of any size and their suppliers. As of January 2021, signatories’ commitments include paying 95% of invoices within 60 days, and 95% of invoices from small businesses with fewer than 50 employees within 30 days.
Max Jones, Head of Construction at Lloyds Bank, said: “Slow and late payments can tie up vital funds for far longer than optimal, making it harder for construction businesses to take on new projects or react quickly to any sudden downturns in trading.
“UK construction sector output is growing, but many firms’ working capital is being strained by factors such as heightened material and energy costs. In this environment, it will be critical that management teams do everything then can to reduce the risk of late payments, and mitigate any impact on cashflow.
“Practical measures, such as improving forecasting processes or offering discounts for early payment, could be valuable options. Specialist working capital management tools like invoice finance will also be a powerful tool in firms’ arsenals – helping quickly release money that would otherwise remain tied-up in unpaid invoices.”