B2B Payments

Late Payments Spur Australian Subcontractors’ Advocacy

Down under, subcontractors are seeking relief from late payments, and calling for legislation to protect their precarious financial condition in the building trade. In the U.K., late payments average more than £24,000 for smaller firms.

In Australia, there has been movement by building subcontractors to stem the tide of late payments, as they are, according to the Brisbane Times, demanding legislation to help address the issue of getting paid in a timely manner. The publication reported this past week that the Australian Subcontractors Association (ASA) advocated for legislation to help protect suppliers, as they must grapple with the specter of insolvency as larger contracting firms collapse.

There have been roughly 2,000 firms in the industry that have gone bust, leaving smaller firms without payment for millions of dollars. One remedy suggested by the ASA involves what is known as “cascading project bank accounts,” which “quarantine” money for payments in the event of a collapse of the firm that is managing the accounts. That option had been introduced in Queensland for government payments and, in turn, is slated to debut for the private sector beginning next year.

The move from the ASA comes after an infrastructure firm, RCR Tomlinson, entered bankruptcy, meaning that subcontractors must line up with creditors.

Separately, in the United Kingdom, recent data from Xero’s small business (SMB) research showed that smaller firms are owed an average of almost £25,000 ($31,804 USD) in late payments. The firm stated that the data came from 2 million invoices analyzed, which represents 11 months of wages or 37 months of average mortgage payment — and, as stated by the company, the aggregate deficit could top £141 billion.

In addition, as measured by August data, 78 percent of SMBs are “owed money at any one time outside of agreed payment terms.” As defined by the data, the average 30-day invoice was paid after 39 days, and the average late invoice was paid 64 days after initial issuance.

Breaking down verticals, the industries with the highest percentages of late invoices were transportation, postal and warehousing, where 68 percent of invoices were overdue in the past year. Wholesale traders were owed the most, at nearly £43,000, followed by admin and support firms at roughly £41,000.

In a statement, Edward Berks, EMEA director for platform business at Xero, said that: “At a time when the world needs small business to succeed, it’s estimated that 50,000 businesses in the U.K. fail each year because of cash flow issues. Our data shows the impact that this level of debt can have on small companies. Predicting working capital requirements still remains a challenge for small businesses, and accessing finance remains expensive and time-consuming. But, it’s increasingly critical that the government and industry takes the right steps to ensure that small businesses get paid faster. New measures to crack down on big business culprits, and smarter technology to automate payments, will all help to alleviate the pressure on small business cash flow.”

Specific to government projects in the U.K., City A.M. reported this past week that government contractors that do not make timely payments to their suppliers may be barred from getting new contracts — a policy that will begin in fall 2019. The exclusion from such projects would come if a company that is bidding for work has not paid 95 percent of invoices within 60 days for two consecutive months — and if they cannot explain the reasons for such delays or show efforts to correct those payment delays.

Beyond the U.K., in Kenya, merchants and individual owners of supermarkets that don’t pay suppliers according to terms can face punitive damages, and may face jail time. The news comes in the wake of a special unit formed to monitor retailers, known as the Buyer Power Department. The unit will probe the abuse of buyer power, reported the Daily Nation.

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