Cash and Contractors – Part Two - cashflow
In the second part of our Cash and Contractors article (click here to read the first part), we're addressing the issue of getting paid on time.
The new UK Public Procurement Regulations demand that everyone in the supply chain abide by a 30-day payment period for government contracts. So, whether you're the prime contractor or a subcontractor at any tier, you should be paid quickly.
The problem with cash flow and contractors is not primarily with the public sector, problems can arise when it comes to getting paid by the private sector. Two of SafeContractor’s social media followers attested to this:
“…the government seem to pay on-time the others think it’s a game but if you played the same antics at the restaurant it would never happen. I pay all my sub's contractors on-time it’s not very nice chasing payments, play the right game pay in good time…”
“The truth is you fight for payment from most companies as a sub-contractor. I pay my bills, accounts and sub-contractors when I'm paid so it has a knock on effect.”
Is there anything contractors can do when dealing with the private sector to make sure that the cash does flow?
Staffan Engstrom BSc CEng FICE, a strategic development consultant*, details some safeguards that contractors can put in place:
There are some concrete steps that main contractors should take in order to understand and manage their cash flows better:
• Measure your cash and profit in ways that will tell you where you stand. You need to know where your projects and business stand in terms of: cash received in advance; over-measure; under-measure; claims (to client and with suppliers); retentions; stocks; and accruals.
• Reinforce an open and transparent internal culture so that these disciplines of meas-urement are robustly and honestly adhered to.
• Target and hold internal management teams accountable for collection of specific sums owed in the pipeline.
• Don’t spend the “surplus cash” that isn’t actually surplus. Plan and model your cash needs on the basis of a potential drought in customer orders so that you know that you will always have the financial resources that you need for the business to thrive.
The National Specialist Contractors’ Council (NSCC) an umbrella organisation which represent 7,000 Specialist Contractors. The NCC has championed the cause of fair payment in construction through its Fair Payment Campaign, which has been running for over seven years with three clear objectives designed to improve payment practices:
• Certainty of payment
• 30 day payment
• The removal of retentions
The NCC have recently been in consultation with the government over “gross unfair payment” and have published Five easy Steps to getting paid, which includes such straight forward tips as agreeing on clear payments terms in your contract (The full tips can be read by clicking here).
Far from being powerless contractors do have a number of number of options at their disposal when it comes to keep the cash flowing, but like many things in life it pays to plan ahead.
What are you experiences when it comes to cashflow? SafeContractor would love to hear your experiences. Click here to get in touch.
* Source: http://www.construction-manager.co.uk/management/why-main-contractors-also-struggle-cash-flow/
Thanks to Stephen Wood, director of Mendip and Safety Ltd and Graham Clark director of Channel Engineering for their help with this article.
Post date: 05 May 2015
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