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Industry pleased with plans to tackle late payment

Industry reaction to Sajid Javid’s plans to help small businesses.

Business Secretary Sajid Javid returned to his home town of Bristol yesterday to deliver a speech in which he set out the Government’s priorities in helping small businesses. 

He explained how his family came to England in 1964 “with dreams of a better life” and how the family business which included clothing stalls and then a family shop in Bristol, which instilled in him “an unwavering belief in enterprise, opportunity and reward for hard work.”

During the speech, the introduction of the Enterprise Bill was confirmed which will serve the interests of small to medium enterprises (SMEs). There will be a further £10Bn of cuts in red tape during the time and the Bill will help to create the additional two million jobs set out. 

The cuts in red tape will help small business by making audits simpler, will cut down on unnecessary health & safety regulations and Javid said: “Over the next five years, we’ll build on the success of ‘One in, two out’ to put the brake on new regs.” 

This will continue the Government’s drive to cut the number of regulations in place to speed up business processes. 

A key part of the plans is the creation of a Small Business Conciliation Service that will tackle matters such as late payment and will give small businesses the chance to settle disputes with larger organisations much easier. 

Late payment is a huge problem and is expected to cost businesses more than £40Bn this year. It is hoped that next year, when legislation comes in place that will see large companies having to report their payment practices, this problem will be alleviated. 

The Prompt Payment Code has been strengthened as well, and UK Construction Media got the thoughts of Tracy Ewen, Managing Director of IGF Invoice Finance, who believes that the support available for suppliers and subcontractors in the construction industry “should be welcomed with caution.”

She did though welcome the introduction of the Small Business Conciliation Service, adding: “The current payment terms that many suppliers in the UK are subjected to mean that goods and services delivered today wouldn’t need to be paid for until long after summer is over; a practice that isn’t sustainable, but it is a reality that, until now, SMEs have had very little power to change.

“The implementation of a Small Business Conciliation Service should protect suppliers against larger and more powerful entities, and should reduce the number of suppliers that fold due to intense cashflow problems.”

Tracy is cautious because it is an issue that businesses have waited a long time to see tackled by the Government. She says that financial advice is available for the time when a job ends but payment has not been received. 

“In the meantime, there are options available that cover the gap between work completed and money in the bank. It’s therefore important for firms to thoroughly review their options and make use of any free financial advice that their own financial partners and suppliers can offer before pressure from large customers impacts their growth or operations.”

Brian Berry, Chief Executive of the Federation of Master Builders (FMB), is “pleased” with the plans put in place but believes there is more to do to ensure that small businesses are paid quicker for work. 

He said: “Late payment has plagued the construction industry for far too long and I am therefore pleased that the new Business Secretary will be bringing forward legislation to tackle the problem in next week’s Queen’s Speech. 

“Late payment by larger firms is a major barrier to small and micro firms forming part of the supply chain for public sector contracts – if we can solve the problem of late payment, we will also open up public sector construction to thousands of construction SMEs. 

“As two-thirds of all construction apprentices are trained by micro-firms, this will have untold benefits for local jobs and growth.”

“However, let me be clear – there is much more to do. At the end of last year the FMB and NSCC published research which showed that more than 90% of small construction firms agree contractual payment terms with their clients of 45 days or fewer but only 57% of members actually receive payment within those terms.”