The UK’s 20 largest property developers now take an average of 56 days to pay sub-contractors, up from 54 days last year, according to new research from Funding Options.
Smaller construction firms are suffering from severe cash flow problems as a result of being made to wait over two months to get paid. Funding Options says that the failure of major developers to pay invoices in good time is damaging their sub-contractors’ growth prospects and in some cases threatening their viability.
Without swift payment of their invoices, small companies such as bricklayers and carpenters cannot budget effectively and face severe funding issues.
These problems are being exacerbated by a slowdown in the construction industry since the second quarter of 2015.
The delays are jeopardising the ability of smaller construction companies to pay wages on time and bid for future work. The claim that big developers are sitting on the money owed to contractors is supported by the fact that large developers are paid by their own customers in 39 days. This is more than two weeks faster than they pay sub-contractors.
The study by Funding Options shows payment delays have been increasing since 2014, when it was taking developers 48 days to pay their suppliers such as electricians and plumbers.
The study adds that with the government setting a challenging target of one million new homes to be completed by 2020, it is more important than ever that payment delays in the construction sector are tackled as soon as possible.
“Smaller sub-contractors face the risk of bankruptcy if they are not paid within a reasonable amount of time,” said Conrad Ford, CEO of Funding Options. “Increasing numbers of small construction firms need help to cover those gaps in their cash flow.
“Major developers feel they have a lot to gain from delaying payments, knowing that their sub-contractors would be hesitant to raise their issues for fear of losing out on future work. There seems to be only two choices for the suppliers: accept these slow payments or lose the business going forward.”
Funding Options says that, technically, businesses are permitted to charge interest and other additional costs if their payment agreements are breached. However, smaller businesses rarely impose these charges as they need to avoid upsetting the companies they rely on for future business.