New research shows that SMEs are increasingly finding themselves at the mercy of ‘cowboy clients’, with many forced to wait up to four months for payment. With both cash flow and trust at risk, the construction industry is being held hostage by a reluctance to pay what’s due.

 

The Federation of Master Builders’ most recent findings are shocking to read, but are also all too relatable for many SMEs within the construction industry. It has become a sad reality that two-thirds of construction businesses are not paid within the standard 30 days, with nearly a quarter waiting four months for invoices to be settled.

As firms face difficulties in navigating Brexit and plugging the skills gap, this all-too-familiar problem threatens to delay projects, undermine progress, and cripple the industry. But is it a problem that firms can tackle alone?

 

A Spreading Problem

In order to better understand why delayed payments are a problem, the FMB’s research highlighted the true extent of the situation; late payment doesn’t simply affect a single business’ cash flow, but instead is reportedly sending ripples throughout entire supply chains. In fact, 30% of those surveyed said that payment delays had forced them to then delay clearing invoices for their own suppliers. As you can imagine, this domino effect can continue for as long as companies can’t afford to pay their suppliers, with consequences reaching farther and farther each time.

Further respondents went on to highlight the deeper issues these flippant attitudes towards payment cause: a fifth of firms felt they lacked the confidence to grow their business due to financial uncertainty – and 8% said they had actually gone out of business as a result. In a bid to keep the wolves from the door, 16% of firms even admitted to borrowing from banks and other lenders – which, if done often, can inevitably lead to significant financial troubles further down the line.

 

More Than Money

It’s not just an outright reluctance to clear invoices which has led to businesses being branded as ‘cowboy clients’, either. Additional bad behaviour, such as demanding firms complete extra work not included in the original brief and conjuring up fictional faults in order to delay payment, has seen SMEs feel the squeeze as they struggle to accommodate troublesome clients.

Time, for example, becomes a restricted resource. Much like the laborious task of chasing after invoices, finding a way to service cowboy clients’ additional requests late in the project can see time being diverted from more valuable activities – such as new projects or internal development – whilst employee morale plummets in the face of little financial reward.

 

Wrangling the Cowboys

At Kaleida, we’ve witnessed how extensive the problem of late payments is – extending far beyond just construction to affect SMEs and their cash flows in a number of industries. For some, automating the process of invoice chasing through bespoke software has helped them to recoup at least some of the time-related losses around manually following up on late payments.

But despite what technology can offer in terms of easing the workflow around chasing payments, the construction industry is most in need of a cultural change, supported by government legislation.

Taking an agile approach to construction work, for example, could prevent behaviours such as inventing faults or asking for extra work pro bono by having requirements laid out up front. If there are any changes to be made further down the line, the agile methodology enables firms to accommodate them more easily – but still charge for them.

Meanwhile, legislation which holds cowboy clients accountable are an immediate necessity. The mistreatment of suppliers by supermarkets has already found its way into the news, when Tesco escaped a fine simply because the adjudicator was given the power too late in the process. Learning from this, the government must create more stringent regulations and provide neutral parties with the power to enforce them.

 

Confronting the Crisis Together

Although firms can and should enforce their own invoicing rules which see them getting paid on time, without the government and regulators also taking the issue seriously, the construction industry could eventually see itself cracking under pressure. At a time when we’re relying on the construction industry to make it safely through Brexit, this is an extra unnecessary struggle.

With dwindling trust affecting growth and investment opportunities, and financial strife putting SMEs out of business, it’s time for cowboy clients to be wrangled once and for all – for the sake of the entire industry.

 

Kaleida are a bespoke software development house in Manchester. We work with a number of industries, including construction, to provide bespoke solutions that help to overcome even the most unique of challenges. To find out more, feel free to explore our website, or alternatively, get in touch with us directly.