Construction industry trade associations have effectively concededthat the Late Payment Act is unworkable in their sector and are planning a new 45-day payment standard, Accountancy Age has learned.
The cross-industry initiative is another blow to the act, following Rentokil’s controversial 60-day payment ultimatum to suppliers last year.
November’s Late Payment Act allows small suppliers to charge large companies an 8% interest rate above base rate on invoices unpaid after 30 days, if no prior payment agreement had been reached before November.
Companies are still able to negotiate individual agreements, however.
The construction industry is renowned for its late payment times, and last month Accountancy Age named the building services companies with the worst records. One of the worst offenders, Crown House, had an average payment time of 120 days for one quarter of last year.
Alan Weir, national secretary for the 66-member Association of Ductwork Contractors and Allied Suppliers, said he was resigned to the fact that the Late Payment Act was effectively unworkable in the construction industry. It is now talking to other industry groups such as the Federation of Environmental Trade Associations to promote a more realistic payment practice.
‘Our members had hoped there would be less scope for client contractors to get round the legislation,’ he said. ‘It’s a sham for our industry to have an average payment time of 60 days so maybe we should recommend a change to 45 days within a year.
It could be difficult to get down to 30 days and we don’t want to set up a penalty system that we can’t enforce.’
Weir added that long-term contracts and the industry’s complex supply chain meant many companies wanted to pay suppliers within 30 days but feared it would damage their cashflow.
But one finance director at a medium-sized contractor in the construction industry said a new 45-day payment standard would be a mistake. ‘There’s nothing wrong with 30 days for payment,’ he said. ‘Why weaken it to 45 days?’
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