In response to Jeremy Corbyn’s promise that a Labour government would crack down on late payments, the National Federation of Builders (NFB) has highlighted the scale of the problem in the construction sector.
Tradespeople owed billions
According to a recent Simply Business poll, four out of five UK businesses are owed money.
But tradespeople are harder hit than most: the NFB says that the construction industry has the worst payment performance of any sector in the British economy, counting for over 30 per cent of all late payments.
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Small and medium-sized construction businesses, including self-employed builders and tradespeople, are owed a staggering £30 billion.
The NFB has warned that late payment is making it difficult for tradespeople to grow their businesses. CEO Richard Beresford said:
“These are the local companies that – while working hard to make ends meet – employ local workers, train local apprentices, and generate money in their local economy.
“Large companies who continue to fail their payment obligations to SMEs are not helping the construction industry, especially when we need to focus our resources as an industry to address key challenges such as the shortage of skilled workers and the housing crisis.”
Can politicians help?
The government has already taken some steps to address the issue of late payment. New regulations came in earlier this month, requiring large businesses to publish details of their payment practices.
The government hopes that this will ‘shine a light on bad practice’ by forcing businesses to show how long they take to pay their suppliers.
Corbyn has said that a Labour government would force companies to pay suppliers within 30 days, and set up a system to resolve late payment disputes.
5 tips for dealing with late payment
1. Be clear about your payment terms
Make your payment terms clear when you first start working with a client. When we spoke to plumbing magnate Charlie Mullins, he said that Pimlico Plumbers always insists on payment on completion to avoid the late payment issue. If you do issue invoices, remember to include your bank details and state when the money should be paid by.
2. Chase them up
It’s important that you stay on top of the invoices you’ve issued and you know exactly who owes you money and how much. Consider keeping a spreadsheet of unpaid invoices, and regularly check your bank account so that you know when they’ve been paid. Email or call late-paying customers to politely remind them that you’re waiting for payment.
3. Have some back-up
All businesses need some money put aside in case unpaid invoices or unforeseen expenses put your cash flow under pressure. The size of your slush fund will depend on your business, but it should be enough to cover basic costs like wages, rent, and stock while you wait for payment.
4. Add interest
If another business is late paying for goods or a service you’ve supplied, you can charge ‘statutory interest’, which is eight per cent plus the Bank of England base rate. Unless you’ve agreed something different, the law counts the payment as late 30 days after the customer receives the invoice. If you decide to add interest, you should issue a new invoice to reflect this.
5. Invoice factoring
You can consider using an invoice factoring or discounting service, which effectively means borrowing money against your unpaid invoices. With an invoice factoring service, the provider will also take over the job of pursuing the unpaid invoices.
How has late payment affected your business? Tell us in the comments.