Insurance broker M&DH analysed reports submitted by the top 100 contractors in the UK on how they pay their suppliers. It found that while most have improved the speed at which they pay invoices, 66 are still failing to pay 95% of invoices within 60 days. This puts them in breach of best practice guidelines approved by the Department of Business, Energy & Industrial Strategy (BEIS).
The study also found that 19 out of the top 100 contractors had got worse, taking longer to pay their suppliers in the most recent reporting period (H2 2019) than a year earlier (H2 2018), based on the proportion of invoices paid within 60 days.
The Small Business, Enterprise and Employment Act 2015 introduced a mandatory reporting requirement, which came into force on 6th April 2017. Since then the large construction companies have been obliged to publish half-yearly reports on their payment practices, policies and performance.
The study comes at a time when the number of businesses in the construction industry going bust reached its highest level in six years. 3,407 construction businesses became insolvent in 2019, the highest number since 2013, when 3,411 construction businesses went bust.
Richard Hames, managing director of M&DH Insurance Services, said: “Late payment of invoices is one of the main risks that building and engineering businesses have to contend with. When businesses collapse cashflow problems arising from late payment are often a significant contributing factor. These numbers show that, while improvements have been made, the industry as a whole needs to do more to make prompt payment a priority.
“With the volume of insolvencies in the construction industry at its highest level in six years, there is renewed focus on the main contractors and how promptly they pay subcontractors. Delayed payment can cascade down the supply chain exposing the weaker links. If a subcontractor goes bust as a result of a late payment, that can have a domino effect.”
He added: “Delayed supply chain payment is often a surrogate for borrowing. It suggests that these contractors are looking to improve cashflow by delaying payment to the rest of the supply chain. Contractors are struggling with rising input costs, which are squeezing margins, so delaying payment of invoices could be a way to mitigate financial stress.”