Small companies in the construction industry are facing a growing cash flow crisis, as latest figures have shown the UK’s 20 largest property developers now take 56 days on average to pay sub-contractors.
Bricklayers and carpenters are, for example, facing major budgeting issues and financing delays – a problem that could see many companies go out of business – a survey from online business finance platform Funding Options has warned.
The issue of non-payment in the sector is made worse by an overall slowdown in the UK construction industry experienced since 2015.
Owners at small construction firms struggle to pay wages to staff or bid for future work, damaging the potential for the companies to grow.
Commenting on the news, Funding Options CEO, Conrad Ford, said that larger property developers feel as though they have a lot to gain from delaying payments. “They know sub-contractors would be hesitant to raise issues for fear of losing out on future work,” he explained.
“There seems to be only two choices for the suppliers: accept these slow payments or lose the business going forward. Sub-contractors face the risk of bankruptcy if they are not paid within a reasonable amount of time – increasing numbers of small construction firms need help to cover those gaps in cash flow.”
The survey found that payment delays in construction had been growing since 2014. During that year, it took major property developers 48 days on average to pay suppliers.
According to Ford, businesses reserve the right to charge additional costs, including interest, to construction companies if terms of payment are breached, yet smaller firms rarely do so on the basis they need to avoid up upsetting the companies they rely on for future business.
Ford went on to say that addressing the issue of late payments in the construction sector was more important than ever were government to meet its target of building one million new homes in Britain by 2020.
These kinds of problems also won’t help the government in hitting the very demanding targets it has set for new home completions,” he added.
Sign up to our newsletter to get the latest from Business Advice.