Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

SMEs still struggling with payment and cashflow

Despite the government’s pledges to invest in the industry, cashflow and funding are still providing major challenges for SMEs, says Peter Vinden, and the chancellor should have done more.

The chancellor’s spending review on the 26th June presented further cuts across local government, as £7bn of cutbacks were announced.

For the construction sector, the outlook appeared to be not quite as bleak, with £50bn promised to unlock infrastructure projects over the next year, and £300bn secured for the rest of the decade.

SMEs need specific, shovel-ready projects

However, this was not the first time that the chancellor has promised a boost to infrastructure spending, but shovel-ready projects are still few and far between, and the construction sector has been struggling to increase its pipeline for a number of years.

Despite pledging the £50bn to “roads to railways, bridges to broadband, science to schools”, there was still no mention of when and where specifically. HS2 was given the green light but again, this is something that is still in the distant future.

“The sad reality is that high street banks do not want to lend to construction firms”

What we need to know is when the projects will get off the ground, and how we can start to tender for such work.

SMEs are increasingly getting left behind as larger construction companies secure the briefs for the major projects available, as confidence in the sector is low.

Cashflow and funding is still a problem

This is not necessarily surprising as many are facing the challenge of balancing an irregular cashflow as contractors take longer and longer to pay for completed work.

The sad reality is that high street banks do not want to lend to construction firms. Major contractors recognise this and have been forced to take extended credit to cover issues originating from their own lack of funding.

“The construction industry has faced hard times, and this new investment could be too little too late”

This is putting tremendous pressure on subcontractors that are sometimes waiting up 90 days or more for invoices to be settled.

SMEs need help on non-payment

Mr Osborne should have announced the creation of low-interest loans and grants for businesses that are falling victim to non-payment.

While a £50bn investment in infrastructure will certainly help the UK to up its game, it is no help to companies that are unable to compete due to funding limitations and issues with accessing finance.

While £300bn in funding for infrastructure is not to be discounted, the fear is that these projects may not materialise in time to help some of the companies that are struggling to keep their heads above water.

The construction industry has faced hard times, and this new investment could be too little too late.

Peter Vinden is managing director of The Vinden Partnership

Readers' comments (1)

  • StreetwiseSubbie

    As Peter rightly says, £300bn in funding is not to be sniffed at, but the money has to find its way right through the economy.

    That means it has to be paid properly and promptly to those who have earned it.

    If we are not careful the taxpayers money will disappear down (technically I think it's "into"-but I'm not a physicist) a corporate black hole.

    The grim reality of the situation is that around 5,000 Specialist Contractors have failed since recession, and that simply cannot be good for anyone in the industry.

    These were not inherently bad or incompetent companies, and many simply fell victim to the fight for survival, or corporate greed of some unscrupulous Contractors.

    There is no doubt that payment abuse continues as demonstrated by our State of the Industry Survey of over 200 Specialist Contractors, (Please feel free to download the results from our web site).

    If we are going to achieve the aspirations set out in the Government’s Construction Strategy then we desperately need to change the culture of payment abuse that is destroying the very firms that can deliver innovation and economic growth.

    Unsuitable or offensive? Report this comment

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.