Only 56 Are Paid Within Agreed Term
TIER 2 sub-contractors, including those in flooring, supply more trade credit to the Tier 1 (major) contractors and clients than they receive from their own suppliers.
This is a key finding of a just completed payment survey by the National Specialist Contractors’ Council (to which the Contract Flooring Association is affiliated) jointly with the Federation of Master Builders (FMB).
The report titled ‘Credit where credit isn’t due’ features responses from 719 businesses with a collective turnover of £2.3bn and reveals that 92% of NSCC and FMB members agree contractual payment terms with their clients of 45 days or less.
But only 56% of members actually receive payment within those terms.
When it comes to their own supply chains, NSCC and FMB members pay within terms much more regularly, with 89% agreeing contractual payment terms of 45 days or less and 84% actually paying within those terms.
Conclusion: The survey concludes that whilst contractual payment terms are improving, late payment is still rife within the supply chain and more needs to be done to ensure payments are made within terms.
The survey finds that contractual payment terms vary depending on the type of client.
Businesses that generally work in the domestic sector have contractual payment terms of 30 days or less, whereas those with a commercial client base are more likely to experience 31 to 45 days rather than 30 days or less.
Construction supply chain: NSCC and the FMB represent a combined total of around 16,000 businesses in the UK construction industry. NSCC members generally work as a tier 2 specialist sub-contractor for a main contractor whereas nearly three-quarters of FMB members work in the domestic repair and maintenance sector for private householders.
Payment terms: The Construction Supply Chain Payment Charter maintains the commitment to payment within 30 days on public sector projects and payment within 45 days from June 2015 and 30 days from January 2018 on private sector projects.
Retentions: The Construction Supply Chain Payment Charter specifies either cash retention will not be withheld or any arrangements for retention will be no more onerous than those implemented by the client in the tier 1 contract, moving towards zero retention by 2025.
NSCC and FMB members have on average 2.2% of their turnover withheld in retentions. At present, an estimated total of £439m is withheld in retentions from all NSCC and FMB members. Around £203m of this, which is more than 45%, is being withheld beyond the agreed contractual terms and is overdue for release.
In the past year, NSCC and FMB members wrote off on average 12.5% of their retentions as bad debts, equating to a total of £55m.
Overdue payments and bad debts: Almost one third of payments owed to NSCC and FMB members for work undertaken are overdue. This represents on average 4.4% of their turnover.
Members write off on average 1% of their turnover in bad debts. In the last financial year, they wrote off an estimated total of £177m in bad debts.
Interest: Charging interest on late payment in accordance with the Late Payment of Commercial Debts Regulations is currently not perceived as an effective mechanism with only 5% of members using it for late payments.
Almost one third of members have used adjudication to resolve a dispute over payment.
This article has been reproduced from the Contract Flooring Journal. You can find them at www.contractflooringjournal.co.uk.