Pay Your Dues
Michelle Lowe is the Founder of Redshell Consulting Limited. In this article, she talks about the need for on-time payments in the construction industry.
Cashflow is king. And it’s king for everyone. No company, business, project, development, consultant or supplier can survive without the steady, reliable stream of incoming cash. It needs to flow freely, in all ways. In and out at the appropriate time to those, where and when it is due. It is an entirely more fluid entity than some might conceive.
This incredibly basic principle of business is still something that fails. Remains to be something that continues to fall short. Something that continues to cause so many unnecessary challenges to individuals, businesses and project deliveries alike.
This topic has reverberated around my mind for a little while now. An underlying annoyance that has indeed grown with intensity. The spark that lit the fuse came about last week. A lovely, kind and award-winning architect I know had posted a status on LinkedIn. A simple status, yet it said everything.
“A client made my day today. When I thanked them for paying our fees within 24 hours… They said: we prefer you focusing on the design and not wasting time chasing us.”
Such a surprise it was that payment was made so promptly that a post followed. Such an unusual occurrence that the hundreds of colleagues in the network commented. “Where did you find this unicorn?” Surprise and admiration for the unusual client who paid and paid promptly.
As an independent consultant, we are also paid in fees, fees invoiced at the end of each month with normal 14-28 day payment terms. As a small business, this is critical. Yet, even we run at 20-25% of our yearly turnover paid consistently and continually late. We are operating with a continual lag. A lag that can and has stuttered our progress with our own business ideals.
You don’t walk out of a store carrying a new TV without paying for it, do you? Well, some might do, but that’s a different societal issue. Or is it?
Regular and timely payments have been a serious issue within the construction industry for a long time. It was the very essence of the Egan and Latham reports from the 1990s and the Housing Grants and Regeneration Act 1996 that followed as a result.
Payment terms, valuation rules and a limit on elongated payment periods from the larger corporates were a move away from companies hoarding their cash, and the supply chain and contractors being squeezed as a result. A huge amount of companies within the industry have, over time, fallen simply because of stuttered cash flow.
As quite rightly pointed out by our unicorn client, the time, resource, and cost of chasing late payments is huge across all sectors within the industry. I am certain that whole account departments are created and exist for the sole purpose of chasing late and outstanding payments. What a tangible waste of resource, time, and energy.
The risk of Employers overpaying Contractors is clearly managed and mitigated via the Contract and by the effectiveness of the Quantity Surveyor. So why the late, or even more annoying, the non-payments?
This really is a chronic issue.
Is it ego? Ultimately. To keep cash in reserves when it's already due elsewhere?
Is it fear? A scarcity attitude that you will somehow fall short?
Is it overstretching? Robbing Peter to pay Paul? Doing something else with it other than allocating it to the project in hand?
A lack mentality when it comes to cash will see you holding on tightly to project funds that quite rightly belong elsewhere at some point.
It is a very old school attitude to withhold monies. To keep balances and deposits within your own accounts rather than passing them down. For what purpose exactly? Has anyone checked the interest rates these days?
Obviously in our role as Quantity Surveyors, we wade continuously knee-deep in the midst of all payments, drawdowns and transactions for the project. Not only does this ensure all drawdowns from the fund are accurate, complete and correct, but also that the project cashflow is distributed appropriately and timely. Correct and accurate payments to Contractors and onwards to Suppliers, Subcontractors and Consultants alike. Yes, it really should be that smooth.
There are of course sometimes understandable reasons why payments may be withheld or settled late. These should be the rare and unexpected events, though. Open communication can usually always find a resolution that helps all parties, both in the short and long term, should funding stutter or be an issue. We are all in this together, after all.
Construction News ran an article on this very subject back in December 2020. Instead of raising awareness and finding solutions, I’m afraid it just highlighted the widespread underlying attitudes that are causing this very problem. A contributor bleated when asked why they sometimes fail to make payments, “We only get 13 drawdowns a year… And if we miss a drawdown date, then our payment terms are stretched from 30 to 60 days”. I eyerolled myself into the next county. Manage it. Quite simply.
If the delay in payments is a result of the Employer just not having paperwork, drawdowns, finances in order, well, get your things in order. Many committed and professional resources are working for you and your project and are relying on the income. You are buying and committing to a service. You do, quite frankly, have a duty of care to all those who are involved in your project. They are pulling this off for you!
The real-time costs of delaying or withholding payment is tangible.
“Recent research by BACS Payment Services revealed that a staggering 75% of UK businesses are forced to wait a month beyond their agreed contract terms before getting paid. Firms have said that this represents the biggest threat to their survival.”
A voluntary government initiative PPC (prompt payment code) had been set up in recent years to start smoothing this whole situation over, yet it is quite surprising who is banned from it. You are no longer eligible to be accredited with PPC if your company takes longer than 60 days to pay 95% of your invoices. Household names, no less.
The government are taking this seriously; new legislation set to be in place for September 2021 limits payment periods to 30 days, which will now be a pre-requisite of winning construction contracts with government and local authorities.
The ill feeling that delayed payments create has of course a negative effect on the commitment to and delivery of any role. I’d beg anyone to differ on this. The communications and project deliverables become a chore. There is a hesitation. It’s a grind; not a pleasure. I also know how awkward it can be to chase the entirely due funds. It shouldn’t be, of course. It’s not awkward for clients and employers to request tasks from you.
The delays in acquiring materials, the reluctant and erratic attendances of labour and workforces, the slow release of design information. All very real effects of late payment. None of this is going to help your project run smoothly.
The most effective catalyst for change in this modern world seems to arise from shame. The shame now associated to poor payment performance and the underlying attitude of operating in this way is hopefully what will make this change. We at Redshell now take fully into account the payment performance of clients and employers, and this directly affects the choices of when, how and whom we will work with and what projects we choose to deliver.
Maybe you should do the same?
P.S. If you owe Qandor a share of deals done… Now is the time to pay up. 😊