Rail subcontractor Aspin is set to increase payment terms for suppliers to 60 days, Construction News can reveal.
In a letter to suppliers seen by CN, the ground engineering firm outlined its intention to move suppliers onto 60-day payment terms, which would see invoices paid 60 days after the month in which work was provided.
The letter, written by Aspin chief financial officer Iain Sale, said the changes aimed to support the company’s growth and to ensure payment terms for Aspin’s suppliers were aligned with those of its customers, which are primarily tier one contractors.
Aspin’s move to 60-day terms comes just weeks after Network Rail revealed it would mandate 28-day payment terms for its tier one suppliers during Control Period 6.
Tier two organisations such as Aspin do not yet come under this mandate and can set their own payment regimes with tier threes and other SMEs.
In its letter to suppliers, Aspin claimed that its average wait for payment was 75 days.
Broken down, it said the average wait from tier one contractors specifically was 72 days. Payment from other Aspin customers aside from tier one contractors took an average of 50 days, it added.
Variations for both took a minimum of 30 days to process on average, Aspin claimed.
Mr Sale wrote: “To grow in a controlled manner, credit terms need to match the credit terms given to the industry in which it operates.”
The majority of Aspin’s contracts are within the rail industry. Its work in the sector is primarily through tier one subcontracts; however, 6 per cent is performed directly for Network Rail.
Commenting on the letter, a Network Rail spokeswoman said: “We take our responsibility to support our suppliers seriously and recognise the challenges faced by smaller suppliers.
“That is why we have taken the step to formally contractualise our voluntary Fair Payment Charter for all our Control Period 6 contracts, making these 28-day payment terms mandatory between tier ones and their supply chain.”
Earlier this year Aspin holding company Aspin Group Holdings entered administration as part of a pre-pack deal, under which its subsidiaries were sold to US private equity firm Sandton Capital partners.
At the time of the administration, Aspin and its subsidiaries were owed £800,000 by collapsed contractor Carillion, including £500,000 for work the company had completed.
The letter from Mr Sale said moving its suppliers to 60-day payment terms would help the company achieve significant growth over the next five years, in which its core suppliers could share.
He said the firm was undergoing considerable investment and change, and this included the opening of a new Scottish office, the introduction of senior project managers, the expansion of its sales team and an operational restructure.
Aspin also plans to consolidate its supplier base and introduce supplier frameworks. Mr Sale wrote that selected suppliers would see their “turnover grow significantly” through this approach.
The groundworks contractor aims to grow turnover organically from its current level of £30m to more than £60m by 2022, though it did not rule out future bolt-on acquisitions.
Mr Sale told CN: “Aspin has ambitious growth plans to leverage its full technical capability across its chosen markets.
“The introduction of Sandton as our principal investor in February 2018 allowed us to reduce the debt on our balance sheet very substantially. This significantly improved the financial strength of the organisation.
“We work through a number of different routes to market and under differing forms of contract.
“We have already rationalised our supply base and are looking to set up long-term supply agreements with the supply partners we have chosen.
“We believe that aligning our supplier payment terms with our customer base allows all our stakeholders to share in the future growth and success of the business.
“We are in the process of finalising the senior appointments essential for the next stage of our planned growth and will announce the full line-up imminently.”