The damning conclusions of the parliamentary inquiry’s report into Carillion come as the industry braces for an increasingly challenging period.
The MPs’ report accused Carillion of leaning on small suppliers to “prop up a failing business model” while also obscuring the true extent of their debts.
Meanwhile the latest purchasing managers’ index from IHS Markit / CIPS found that activity in the sector was “treading water at best” during April.
And despite the Cabinet Office announcing last month that it planned to exclude suppliers with poor payment practices from winning major government contracts, it’s clear there’s much more that must be done to reduce late payments across the industry.
Trade payments data from Creditsafe shows that construction industry payments made during April were paid 16 days later than the payment terms, on average – seven days more than the same period a year earlier.
In addition, it was higher-value invoices (those worth more than £10,000) that took the longest to pay, with suppliers waiting more than twice as long on average for these major payments compared with invoices under £100.
Creditsafe’s data also shows that the time taken for companies in other sectors to pay construction suppliers has been unpredictable over the past 12 months.
“It’s clear that the construction sector is moving in the wrong direction when it comes to paying suppliers on time”
In February and March, it looked as though late payments were decreasing, but last month saw this number jump back up to an average of 19 days late – five days longer than in April 2017.
This may have been the result of finance directors taking their foot off the pedal after the financial close at the start of the month.
Regardless of the cause, it’s clear that the construction sector is moving in the wrong direction when it comes to paying suppliers on time.
Frank Field, co-chair of the joint select committee inquiry into the collapse of Carillion, said the UK’s second biggest contractor by turnover had “displayed utter contempt for its suppliers”.
If any good is to come from Carillion’s failure, it should be seen as a warning shot to all industries about the fragility of small businesses, which are responsible for a substantial proportion of the UK economy.
We can only hope that construction companies learn from these errors and take their responsibilities seriously when it comes to fair payment practices and paying invoices on time.
Chris Robertson is UK CEO at Creditsafe