As contractors across the globe struggle with slow payment, things may be looking up for the UK: A recent report from the United Kingdom’s Construction News has shown that over the past two years, the UK’s 100 biggest contractors have seen their payment situations improve across the board.
The reason? A set of payment regulations called the UK Prompt Payment Code may be giving contractors more incentive to pay on time.
Construction News compared the payment times of the UK’s biggest contractors between March 2019 and December 2021, finding that the median average time to settle an invoice decreased from 43 days to 39.5 days.
At the same time, the percentage of invoices that were not paid according to the full terms of the contract decreased significantly over the specified time period, going from 28% in 2019 to 12% in 2021.
What might be causing this shift? In 2019, the agency that administers the UK Prompt Payment Code began publicly naming any companies that didn’t meet its minimum requirements (at the time to pay 95% of its invoices within 60 days). This led to a number of huge contractors being publicly removed from the Prompt Payment Code in 2019, including Balfour Beatty Group and Kier Construction, the two largest contractors in the UK.
According to the analysis, this may have led to a positive change, and there could now be a benefit to working with these significantly larger firms. The report noted that the top 15 largest contractors on the list — firms with a turnover of at least £1 billion — had an average payment time of 32.7 days, a major difference from the 43.8-day average of companies with a turnover under £200 million.
Showing even more improvement, Balfour Beatty and Kier Construction were both reinstated to the Prompt Payment Code after their previous removals.
Even if the Prompt Payment Code isn’t solely driving these improvements, the United Kingdom’s government is committed to tackling the problem of late payment in the country’s construction industry, and results are so far looking positive. Sadly, this isn’t necessarily the case elsewhere.
One PWC report noted that it took contractors an average of 83 days to get paid. Additionally, according to Levelset’s 2021 Construction Cash Flow & Payment Report, only 9% of construction businesses in the United States say that they’re always paid on time.
The problem for US contractors goes beyond payment speed, too. In 2021, only 11% of contractors reported that they always get paid in full for work done, down from 85% in 2020 and 93% in 2019.
The costs of delayed payment can add up quickly and be a significant handicap for contractors. As Levelset’s Jonny Finity notes, “Allowing a contractor or project owner to pay late is the same as loaning them money. Every day that the money isn’t in your pocket, it’s costing you in a variety of ways…If you’re not passing on those carrying costs, you’re losing money.”
“If you’re a subcontractor that’s getting slow-paid on a project, it’s easy to blame the general contractor for the hold up,” says Levelset’s Matt Viator. “After all, they hired you on the project, they’re the ones that you have a direct relationship with, and of course, they’re the ones that actually make the payment to you, late or not.”
However, this isn’t always such a simple assumption to make. Sometimes, a project’s general contractor may be having an issue with slow payment from a property owner.
In these cases, it can be helpful to work with all of the subcontractors, sub-subcontractors, and suppliers on a project to send preliminary notices in order to keep leverage to encourage prompt payment from owners and let them know that they may be subject to mechanics liens in the event of payment problems.
Much like UK contractors changing their payment habits, merely making sure that owners are aware of the power that contractors have to file mechanics liens and secure payment can help to keep payment fast and in full.