Late-paying customers are forcing thousands of construction firms into bankruptcy every year in the UK, and this is now the single greatest threat to construction firms according to new research by payment provider Lopay.
The company analysed the experiences of small construction firms across the UK and found that half of them ranked late payment as the greatest danger to their business.
This figure is twice as much as the proportion who see falling demand as the biggest threat (24%) and nearly triple the number most concerned by the rising cost of materials (18%).
The analysis also found the lengths builders have to go to when chasing late-paying customers: one-third (34%) have downed tools and refused to resume work until an outstanding invoice is paid, and more than one-quarter (28%) have threatened legal action in order to get a customer to settle up.
The findings follow official statistics that showed 4,165 construction firms went bust in England and Wales in the year to the end of March, the highest level since the last financial crisis.
Lopay’s research highlights the strain that late payments are putting on builders’ finances, as 70% of those polled said their cashflow had been impacted by clients failing to pay on time. Consequently, half of builders have struggled to pay for materials and 30% have been unable to take on new work, with a further 8% missing a loan repayment or vehicle lease payment.
Richard Carter, founder of Lopay, commented: “When times are tough, keeping on top of your cashflow is the difference between life and death for small businesses. Nowhere is this truer than in construction, where the epidemic of late payment is pushing many contractors to the edge.”
I ask David Bailey, founder of PNT Property, for his thoughts on the state of UK construction and he starts by telling us how the level of confidence in the market has changed recently. “Sentiment has definitely changed over the past 12 months to a much more defensive position regarding buy to sell (BTS) developments. Whilst there is obviously still strong demand for housing generally, some of this has shifted to the rental sector. Affordability has clearly changed for buyers, due to inflation and interest rate rises, and developers can’t afford to ignore that. My gut feeling is that demand will pick up again, however, having no crystal ball, build to rent certainly feels like a safer option at the moment.
