When Carillion went bust in January of last year the shock waves were felt throughout all sectors of construction. This was a company that employed 43,000 people, had turnover of more than £5bn a year and had a stock market capitalisation of £1bn. They had all sorts of Government contracts , HS2, Crossrail, schools, prisons. They were involved in so many things you wouldn’t have even realised.
So when they went under, the chain reaction that spread throughout various industries, including our own, was immense. The jobless count was horrendous. The scrutiny was intense. One of the areas that was briefly in the spotlight was how payments were governed. Carillion used a lot of sub-contracted companies to get their work done. Their collapse caused many other smaller businesses to go under because of lost income. Some companies were reporting outrageous amounts of time for bills to be paid by Carillion.
This got me thinking about how payments work in our industry, both on a B2C and B2B level.
Business to home owner
As may day job is in installations, I can look at this directly from a B2C perspective. When we complete a job for a home owner we ask for the final balance at the end of the final day of work when work is complete. If there is something small that needs to be rectified we let customer’s hold 5% of the final balance back until whatever the issue is becomes sorted. For us this is fair. The work has been done, other people have to be paid, it’s only right that we ask for prompt payment.
We don’t give a period of time after work has been done for home owners to pay. That gives them a natural gap in which to create reasons not to pay. We have a 10 year guarantee that is worth something, so if they do find something wrong with the installation we have our own service engineer who can go out and sort any particular issues the home owner might have. That doesn’t stop home owners though from trying their best to prolong payment for as long as they can get away with.
A classic tactic is the “snagging list” that magically appears when the question of final payment comes up. You could have the neatest, cleanest job and walk away confident that you’re done and dusted. Then when the invoice comes out to ask for payment a list is presented out of nowhere for things the home owner isn’t happy with. As you would expect, payment is withheld until that snagging list is taken care of. Therefor taking more time for the installer and the home owner can hold on to their owed money that bit longer. Not really fair, but installers are sort of held to ransom to deal with it or else not get final balances paid.
We have also had it where even before home owners have signed on the line they have said that they will wait a few days to make sure they’re happy with the installation before they pay. I had a customer like that not so long ago. I swiftly and firmly put them in their place and said that’s not how it works. You wouldn’t go into Asda, do your full weekly shop and then say to the cashier that you’ll pop back at the end of the week to pay for it once you’d eaten everything and made sure you liked it. You pay, you leave, you return if there’s a problem. Simple. Why would new windows and doors be any different.
Hand on heart we don’t have that often, most of our customers are pretty sharp on paying the final balance. Most are more than happy to pay quickly on the final day of work. So if you were to ask how long should an installer give to a home owner to pay their final bill, I would say that immediate payment is expected. When a job is done well, most are happy to pay straight away. And lets be real, most installers are SME’s and cash flow is the lifeblood of the business. So quick payment is very welcome.
B2B? Things are different.
Business to business
This is a very different part of the supply chain, where structures are very different. For example, most installers will have terms with their fabricators of around 28/30 days. That’s the norm. But where I draw the line at payment terms is when companies request terms of 60/90 days or even more. This is where the Carillion analogy becomes relevant.
I do not believe that terms like this are fair to any business. Think about it. Would you carry out work, work which incurs cost to you, to then have to wait two months to be paid for it? No, I’m pretty sure you wouldn’t. So why is it in supply chains across various industries, ours included, that some companies are made to wait 60 days or longer to be paid? That’s far, far too long.
It’s something that you often get with the very biggest companies and it only serves to put additional pressure on smaller companies. So, using the Carillion analogy again. Imagine a scenario where you have a big fabricator with installers who demand payment terms of 60 days. It’s far too long to start with, but imagine then if a number of those installers go bust and they haven’t yet paid their fabricator. That leaves the fabricator down potentially a lot of money which could have a larger impact on them in the medium term. Had payment terms been shorter and a lot more reasonable then they would have had a better chance of getting their invoices paid.
Obviously crazy long payment terms have been around in industry for decades, this isn’t something new. That doesn’t mean that this is still OK. We operate in much changed economic environments where everything moves a lot quicker. Following the collapse of Carillion and the light it has shone on how businesses get paid for their work, I would like to see new legislation introduced which puts a maximum limit on the amount of time given to pay invoices. I would personally set it at 28 days. That’s not working days either. That’s four calendar weeks for the invoiced company to be able to allocate funds for that bill. That seems fair to me.
It’s time for change. When people and companies do work, it’s only fair that payment is swiftly made. I do not find it logical that people and companies are made to wait stupidly long periods of time to get paid. These are norms that need to be challenged, broken down and new norms set.
What are your thoughts on this? Do you give 60/90 day payment terms? Are you still waiting to be paid for work done a while ago? Is it time shorter terms are legislated for to protect all parties who carry out work? All your thoughts and opinions are welcome via the comments section below.
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