Large firms should be made to pay SMEs within 30 days of invoice, urges the Chartered Institute of Building, CIOB, in its Covid-19 and Construction report.
The professional body wants the government to strengthen the prompt payment code, which requires companies to pay SME suppliers within a month. It has highlighted that ‘a mere’ 3,500 companies are signatories to the code because it’s voluntary.
The call follows recent CIOB research showing more than half of the 1,400 SMEs surveyed were receiving payment within 40 days during the pandemic. This compares with the Federation of Master Builders’ data in 2017 where less than a third of SMEs were paid within 30 days.
Project and programme management consultancy, EEDN’s commercial director Paul Singh said: “The pandemic has increased collaboration and empathy within the industry from clients to consultants and contractors, opening dialogue and reducing the adversarial approach.
He added: “We have also seen greater proactivity when it comes to invoicing and payments, with invoices often being settled before the payment period is up. There is undoubtedly still a lot of work to be done but the signs are certainly encouraging.”
Late payment stops builders from embracing change
The report has highlighted that late payment, procuring for the lowest cost and poor risk management have hampered the industry’s ability to change. It said that finance was the largest constraining factor leading to practice changes only when clients or legislation required it.
CIOB policy and public affairs officer and report author Daisie Rees-Evans said: “As a result of late payment practices within the industry, these smaller businesses often cannot afford to inject cash into new methods and processes that bring no short-term benefits.”
Finance brokers Hank Zarihs Associates said property finance lenders would be able to lend more to smaller builders if it became mandatory for larger firms to pay them on time.
The government launched the voluntary prompt payment code in 2008 requiring companies to pay suppliers within 60 days. It strengthened the code in July 2021 requiring firms to pay smaller companies, those with less than 50 employees, within 30 days.