Businesses in the construction and real estate sector are suffering the
longest waits for their invoices to be paid, with delays now averaging
more than 15 weeks, says the Asset Based Finance Association (ABFA), the
body representing the asset based finance industry in the UK and the
Republic of Ireland.
According to research by the ABFA, businesses in the real estate and construction sector have seen waits for payment increase by 22 per cent in the last five years to 107 days, from 88 days in 2008.
The ABFA says that long payment delays are putting continuing pressure on a sector which has not yet fully recovered from the collapse in the property market of 2008/9, increasing the strain on their cash flow and making them vulnerable to financial shocks.
Jeff Longhurst, Chief Executive Officer of the ABFA, says, “Many businesses are finding that payment delays are getting worse rather than better, despite the economic recovery and moves to improve prompt payment practices.
“In the construction and real estate sectors, there has been a long history of delays in payment, and despite numerous attempts by several Governments to improve the situation, these figures show that the problem is actually worsening.
“For a lot of construction businesses, the effects of the recession were exacerbated by the difficulties they had in getting paid on time for the contracts they did win.
“Long supply chains in industries like construction mean that the ripple effect of delays is likely to affect many other businesses further down, with SMEs hit the hardest. In an industry with high overheads in terms of materials and labour costs, this can be incredibly frustrating and difficult to cope with.”
Public sector payment waits fall as Government pressure pays off
The ABFA points out that many of the sectors that have enjoyed the biggest reductions in payment delays provide services to publicly funded bodies. For example, the education sector and museums and libraries have both seen their average debtor days fall by around 50 per cent since 2008 to 25 and 26 days respectively, thanks to central government pressure on public sector bodies to pay invoices promptly.
Since 2010, Central Government departments have been ordered to pay 80 per cent of invoices within five days, although the actual proportion of invoices paid within five days has routinely topped 97 per cent in the past year. Local government targets are less stringent, aiming for all invoices to be paid within 30 days of receipt.
Says Jeff Longhurst: “It’s very encouraging to see that central Government pressure on other public sector bodies to pay promptly is paying off. Organisations higher up the public sector supply chain are clearly feeling the benefits.”
Restaurants, bars and hotels experience the shortest waits for payment of 20 days on average.
Invoice finance can offer solution to delayed payment problems
The ABFA says that use of invoice finance can offer a solution for businesses dealing with long waits for payment. It explains that invoice finance allows businesses to receive payment up front for their unpaid invoices, making sure that they are insulated from the risks of slow payment by customers, and letting them invest in their growth.
In December, the Government published a consultation on new rules to nullify clauses in supplier contracts that can prevent SMEs from using their unpaid invoices to secure funding, using powers that will be granted by the Small Business, Enterprise and Employment Bill. The ABFA argues that the legislation addressing such unfair contractual practices has to be comprehensive if it is going to be effective in enabling smaller businesses to access a wider range of finance. Legislation is expected later this year.
Says Jeff Longhurst: “Recent moves to enable more businesses to use asset based finance to unlock the value of their invoices up front are therefore vital. This will ensure that late payment of invoices doesn’t mean cash flow is put at risk and firms miss out on growth opportunities because they can’t invest in the capacity, personnel, research and assets that they need.”
(Source - ABFA Press Release)