Ensuring a regular flow of payment is critical to any business’ survival but in the construction industry, timely cash flow through the supply chain is crucial.
So what tools can construction companies use in order to avoid unpaid bills?
Construction Associate and Chartered Civil Engineer, Guy Thomas outlines how to approach a common problem that can occur within the sector.
Know your Client
It’s common sense to research and get to know your client (this may be the direct employer or a contractor) and their payment record.
If they have had problems paying in the past, you should consider if this puts your business at risk once again. If the client is new to you, consider carrying out a credit check or making other inquiries as to credit worthiness.
As long as your client agrees, seeking payment security in the form of advance payments, parent companies or personal guarantees are all effective efforts to minimise payment risk.
Know the Contract
Although the Construction Act requires certain provisions to be included in construction contracts, every contract is different and it is essential that you are familiar with the specific detail and requirements of your contract.
Ensure that you read and understand the payment method and process stated and that you are aware of the dates regarding monthly applications and services of notices.
Comply with the requirements relating to applications for extensions of time, loss and expense. Some contracts place a deadline on applications for extensions of time or loss and expense, where if you fail to submit your claim within the stated time period, you will lose your entitlement. This can have a definite impact on cash flow.
Know the Law
The Construction Act gives those performing services under a construction contract several rights. One of the Acts’ very purposes was to increase cash flow in the construction industry.
Certain provisions must be included in the contract including:
- Interim Payments: where the duration of the work exceeds 45 days
- Right to suspend: if the client fails to pay, the contractor may suspend performance
- Interest: you may be entitled to interest on late payments either under the terms of your contract, or the Late Payment of Commercial Debts (Interest) Act 1998
It’s not always possible to avoid unpaid debts entirely, but with the right information and tools at your disposal, it is possible to keep them to a minimum.
Guy Thomas says: “Unpaid bills are on the rise; it is important to keep on top of payment issues and keep them under control. If not, the consequences of a poor payment regime can be fatal to a company and its employees.”