9 Nov 2017 / Back to latest updates

SME construction firms – 10 steps to avoid late payments

The Federation of Master Builders (FMB) has revealed that a quarter of SME construction firms have to wait for more than four months for payment from a client or large contractor and less than one third are always paid within 30 days.

This is having a detrimental impact on these businesses causing 30 per cent of firms to delay payment to their own suppliers, and 20 per cent to stall their growth. In the most serious cases, late payment has seen eight per cent nearly go out of business and five per cent withhold wages and salaries.

The FMB refers to this as ‘cowboy behaviour ‘with the worst culprits seeking to delay or withhold payment on spurious grounds such as discovering make-believe faults.

We have worked with many SMEs who have faced the same challenges, so here are 10 steps firms should take to help protect themselves and recover their debt as soon as possible:

1. Credit check your customers.
2. Include a payment process in your contract determining which payments are due and when, as well as the total sum due. This is mandatory for all construction contracts involving work which is specified, or estimated to take, more than 45 days, but is advisable for all projects (Housing Grants, Construction and Regeneration Act 1996 applies).
3. Incorporate terms and conditions into your contract and get them signed – these can bolster your negotiating position if your invoices are unpaid or are disputed.
4. Send your invoice quickly and efficiently to avoid unnecessary delays to the payment process.
5. Send a statement of account 14 or 21 days after you’ve sent your invoice in accordance with your terms and conditions.
6. As soon as payment is overdue, send a reminder letter
7. Be persistent – follow up your reminder by phone to find out the reason for non-payment, and send an email afterwards so that you have a record of the conversation in writing.
8. If your customer is not paying because of financial difficulties, consider a payment proposal plan.
9. If there are no valid reasons for non-payment after the first reminder letter, send a final reminder.
10. If payment is still not received, seek specialist legal advice as quickly as possible. More often than not, if that first letter does not result in payment, your third letter is unlikely to result in debt recovery so don’t waste time repeating the process.

The Debt Collection Centre can help by sending an initial legal letter on a no-collection, no-fee basis.  As the letter is from city solicitors, this sends a powerful message to a debtor that the debt must be paid immediately. As a result, in the vast majority of cases, this results in full payment together with accrued interest and costs. If the debtor does not respond, the Debt Collection Centre can start legal or bankruptcy/winding up proceedings.

For further information on helping to avoid late payments or recovering your debt as quickly as possible, please contact our specialist team.