Payment Culture in the UK Construction Sector 2024
The UK construction sector payment culture can vary depending on several factors including the size of the companies involved, the nature of the projects, and prevailing economic conditions.
- Payment Terms: Payment terms in the UK construction sector typically vary depending on the size and nature of the project. Smaller projects may have shorter payment terms, while larger projects or contracts with governmental bodies may have longer payment terms. It’s not uncommon for payment terms to range from 30 to 90 days.
- Late Payments: Late payments are a common challenge in the construction industry, with subcontractors and smaller suppliers often facing delays in receiving payments from larger contractors. This can create cash flow issues for smaller businesses and sometimes lead to disputes or strained relationships within the supply chain.
- Retentions: Retentions are a common practice in the UK construction industry whereby a percentage of the contract value is withheld by the client or main contractor until the work is completed to their satisfaction. While retentions are intended to ensure quality and completion of work, they can impact cash flow for subcontractors and suppliers.
- Payment Practices Reporting: To tackle late payments and improve transparency in payment practices, the UK government has introduced measures requiring large companies to report on their payment practices, including the average time taken to pay invoices. This aims to encourage prompt payment and discourage unfair practices.
- Digitalisation: There is a growing trend towards digitalisation in B2B payments within the construction sector, with more companies adopting electronic invoicing, online payment platforms, and automated payment systems to streamline processes and reduce administrative burdens.
- Supply Chain Finance: Supply chain finance solutions are increasingly being utilised in the construction industry to address cash flow challenges and mitigate the impact of late payments. These solutions allow suppliers to access early payment on their invoices, often facilitated by financial institutions or third-party providers.
- Legislation and Regulation: The UK government has implemented various measures to address late payments in the construction sector, including the introduction of the Construction Act and the Prompt Payment Code. These regulations aim to ensure fair payment practices and provide avenues for recourse in case of disputes.
Overall, while payment culture in the UK construction sector can be characterised by challenges such as late payments and retentions, efforts are being made to improve transparency, streamline processes, and foster fairer payment practices through legislation, digitalisation, and supply chain finance solutions.