Good cash flow management is critical to the success of companies in every industry. In construction, where payment is typically received long after costs are incurred however, it is vital.
Poor payment practices by larger construction firms can cause real damage to those further down the supply chain and it is therefore important to understand how you can manage situations of late payment and to avoid them in the first place.
It’s worth asking yourself some key questions:
- Do you understand the payment terms in the contracts that you have entered into?
- Does the contract even have a specific clause that deals with how, when and how much you will be paid?
The standard forms of contract, the ones commonly used in construction contracts when unamended are written to protect both parties: they must be compliant with the terms of the Housing Grants Construction and Regeneration Act 1996 (“The Act”) and where a contract does not contain a payment clause, The Act is used as a standard.
There are two types of payment mechanism:
- either the paying party (i.e. the employer or the main contractor) is responsible for notifying the payee (i.e. the main contractor or the sub-contractor) what will be paid and when; or,
- where the payee makes an application for payment to the payer.
In both arrangements the amount of money which is to be paid and when it will be paid are determined either by the contract or by The Act. It is imperative that you understand these terms (the Due Date, the Pay less Notice date and Final Date for Payment etc.) so that if a party fails, you understand which provisions apply and how to act so that you are paid quickly.
There is no reason why you should be paid late, or not at all, provided you know and understand what has to be done, by whom and by when, and what action to take if anything should not happen by the prescribed time.
If you have just won a new contract or have an existing one and are experiencing some payment difficulties, C-Link Partner, Commercial Risk Management can provide you with support.
Know your contract and understand your rights and obligations with C-Link.
About Paul Heming
Paul was a Quantity Surveyor who gained 10 years experience of managing £200 million worth of flagship UK projects, including 20 Fenchurch Street and Battersea Power Station. In 2015, Paul founded C-Link with the intention of sharing his expertise of managing major projects with the SME market.