It is more important than ever that companies treat their supply chain partners fairly, especially when it comes to payment, according to the Building Engineering Services Association (BESA).
The government’s reformed Prompt Payment Code (PPC) came into force on 1 July, and BESA says this should remind all contractors of their obligations to pay suppliers fully and on time.
Code signatories must now pay 95 per cent of invoices received from businesses with fewer than 50 employees within 30 days or risk being barred from public sector projects. Previously the payment period was 60 days. In addition, senior directors are now required to personally sign the code and take responsibility for payment practices throughout their organisations.
They must also formally acknowledge that suppliers are entitled to charge interest on invoices paid late.
No PPC signatories were suspended from the code during the coronavirus pandemic, but the Cabinet Office has promised to step up enforcement.
“Late payment starves companies of working capital when they need to be investing in skills and technology,” said BESA’s director of legal and commercial Debbie Petford. “It also raises stress levels in an industry, which has been dogged by serious mental health problems for years.”
She said this issue had been a source of “fury and frustration for decades” and remained a fact of life for too many businesses, despite upwards of 20 government-backed ‘initiatives’ having been implemented.
Petford added: “Wilfully delaying payment to fund your own cash flow is dishonest and immoral. It is even more deplorable at a time when many small firms are fighting for their lives.”
The scale of mental health issues linked to late payment was exposed by an online survey commissioned by BESA and the ECA and carried out by pollsters YouGov to coincide with Mental Health Awareness month.
It found that employees in construction SMEs were more than twice as likely to have suicidal thoughts as people employed in other sectors. Displays of extreme anger resulting from late payment are also 50 per cent more likely in SME construction firms than in businesses of a similar size in other industries, according to YouGov.
The speed of the sector’s post-lockdown recovery seems to have added to the stress experienced by many construction SMEs because it has brought late payment to the fore again. The survey showed that extreme responses, such as suicidal thoughts, depression, and panic attacks in construction SMEs were 6 per cent higher than in sectors experiencing a slower economic recovery.
“We welcome the government’s intervention in this area and look forward to the code being properly policed and its measures enforced,” said Petford. “Improving cash flow through supply chains is good for everyone because it leads to increased investment in people and products as well as well-motivated and responsive workforces able to deliver better projects for clients.”