The recent late payment crisis has caused no end of misery for construction and engineering contractors.
Small and medium enterprises are often at the mercy of larger businesses when it comes to settling payments for goods or services rendered.
Research conducted earlier this year by Xero’s Small Business Index (SBI) showed that around 400,000 small firms were impacted by the poor payment practices of larger firms.
This trend has continued, with more recent data from the SBI suggesting that the rise in energy bills and wages, coupled with slower consumer spending power and late payments is causing SMEs to feel the pinch.
Here, Adam Davis, a Director with Palmers and Head of the firm’s Construction Law team, explains how reviewing your payment terms and conditions can often help to minimise the detrimental effects of late payments.
Renewing payment terms and conditions to improve cash flow
Within the terms and conditions of a business, there should be a clause that outlines your rules relating to payments. However, you need to be aware that there are specific payment terms that the govern the construction industry. These are contained within the House Grants, Construction and Regeneration Act 1996 (as amended) and you need to ensure that where you have a ‘construction contract’ within the meaning of the Act that your payment terms comply with the same.
The need to renew your business’s terms and conditions surrounding payment, especially in light of growing economic uncertainty, and to ensure that they are compliant with the Act is vitally important.
By doing so, you will be securing clear rules that your clients need to follow, irrespective of their business size.
Where you have greater concerns about late payments, it may be beneficial to draft dedicated payment agreements which outline, in detail, when and how you should be paid, plus any penalties or actions in the event of late payment.
If you have outstanding payments due from another business or customer and need advice on renewing your payment terms and conditions, please contact us.