No industry is immune to the problem of late invoice payments, which has become a particular challenge for companies in the U.K. market.
Recent research from Concur, released last week, found four in 10 businesses struggle with late B2B payments, and, contrary to popular belief, the problem isn’t plaguing only small businesses (SMBs). According to the report, 63 percent of medium-sized businesses said they receive a late payment at least once a month, compared to 40 percent of small firms.
Nearly a third of companies surveyed by Concur agreed they would feel a significant impact if their largest customer took 90 days to pay an invoice; 15 percent said such a scenario would mean they wouldn’t even be able to make payroll. More than a fifth of business “deaths” every year (nearly 58,000 businesses that go under every year) attribute their failure to late invoice payments, the report found.
Overall, nearly three-quarters of companies said they were negatively impacted by delayed and late B2B payments.
There’s one industry that has gained attention among FinTechs for its own struggle with the late payments dilemma in the U.K.: construction.
Separate research from the Federation of Master Builders (FMB) show two-thirds of small- and medium-sized enterprises in the construction industry are not paid within the standard 30 days. Nearly a quarter told researchers they have to wait more than four months to get their invoices paid by large corporate customers or contractors.
According to reports in Construction News, the delayed invoice payments are causing a domino effect: SMBs are struggling to pay their own suppliers as a result. It’s also leading to cash flow issues for businesses in the industry, with 16 percent noting they were forced to borrow money to stay in business, while 8 percent said they nearly shuttered operations as a direct result of late invoice payments.
In its analysis, the FMB described these late-paying customers as “cowboy clients.”
“The worst type of cowboy client seeks to delay or withhold payment on spurious grounds, for instance by discovering make-believe faults,” said FMB Director of External Affairs Sarah McMonagle, highlighting the fact that sometimes late payments in the construction industry are an intentional, sometimes malicious, strategy on the payer’s part.
McMonagle added that these late payments patterns are “completely unacceptable.”
An Ongoing Challenge
This isn’t the first time the late payment struggles of the construction industry have been highlighted.
Late last year, separate research from Bibby Financial Services found the majority of construction subcontractors (55 percent) say they feel powerless to influence the payment behavior of their corporate customers. At the time, Bibby Financial Services Managing Director of Construction Finance, Helen Wheeler, described this as “the battle of David versus Goliath ... with larger constructors wielding the power and smaller firms reluctant to negotiate terms through fear of losing future work or gaining a reputation for being difficult.”
A survey found 27 percent of construction subcontractors, typically SMB-sized, say late B2B payments from top contractors would be their largest hurdle in 2017.
In PYMNTS.com’s February Faster Payments Tracker, lienwaviers.io CEO Geoff Arnold explained that some B2B payments friction in the construction industry can be attributed to the market’s continuing reliance on paper documents and manual data exchange between business partners.
“You’re seeing roofers who grew up with the internet nowadays,” he told PYMNTS. “They have this expectation that money moves fast.”
Other FinTechs, including Viewpoint, have introduced their own solutions to help construction businesses handle cash flow and manage operations. Viewpoint launched its Enterprise Cloud solutions earlier this year to help construction businesses streamline processes both in-office and in the field, including accounting and payroll.
But while solutions like these may help industry players manage their money, FinTechs cannot force a contractor or other corporate client to pay suppliers on time. U.K. regulators have introduced several measures to encourage companies to pay invoices on time, including the Prompt Payment Code, which was followed by the Construction Leadership Council’s Construction Supply Chain Payment Charter (CSCPC) — similarly a voluntary code of ethics for construction companies to vow to pay suppliers in a timely manner, within 30 days, beginning Jan. 2018.
According to the CSCPC, “anecdotal evidence suggests that there is only a sporadic correlation between signing the code and actually paying suppliers promptly.” Whether that same late payments pattern will continue when the Construction Supply Chain Payment Charter agreement begins in a few weeks is yet to be seen.