I don’t think it is my imagination, but this year there seems to be more darts flying from all directions concerning the time it takes contractors to pay their suppliers and subcontractors.
Following my last post about the multitude of Security of Payments Acts around the country, there are now also other government departments and some private businesses getting into the mix.
The Government Departments
Let’s start with this aspect. The latest players to stick their collective noses into construction payments are as follows:
This department is responsible for The Payment Times Reporting Act 2020.
The objects of this Act are said to be ‘to provide for the reporting on payment terms and practices by large businesses, certain government entities and volunteering entities about their small business suppliers. This is intended to improve payment outcomes for small businesses by creating transparency around their payment practices’.
Large businesses (those with turnover greater than $100mill pa, and not just in construction) are now required to report the various times that they take to pay small businesses (those with turnover less than $10mill pa). In fact, the reporting involves declaring both the number and value of invoices paid in less than 20 days, 21-30 days, 31-60days, 61-90 days, 91-120 days, and greater than 120 days.
The report has some 60 fields which are to be filled-in by every large business each six months, and the ‘Explanatory Statement’ suggests that the time required to do this is up to 9 man-days each six months. Not an insignificant impost!
The above-mentioned ‘small’ businesses may review the information on the Payment Times Register web portal, and see how their clients rate. Rather like a naming and shaming exercise.
This organisation has published a ‘Code for the Tendering and Performance of Building Work 2016‘ made under section 34 of the Building and Construction Industry (Improving Productivity) Act 2016.
Over-simply, this Code requires any construction company which tenders for Commonwealth funded construction projects, to comply with the Code across all of the company’s projects (my emphasis).
This Code mandates a wide range of policies, practices and behaviours for contractors, and is not restricted just to payment terms. However, concerning the payments issue, the Code requires any Code-covered contractor to report monthly on all late payments. That is ‘report any disputed or delayed progress payment to the ABC Commissioner and the relevant funding entity as soon as practicable after the date on which the payment falls due’. This report has 20 fields to be entered for every late payment. Another not insignificant task!
Supply Chain Finance
A relatively new term for an old facility. There are many companies, some which have been around for a long time, that provide ‘factoring’. Invoice factoring is a type of invoice finance where you ‘sell’ some or all of your company’s outstanding invoices to a third party at a discount. The factoring company then collects the debt.
There is at least one new entrant in the construction payments market which offers a different service. The construction company sends a list of supplier and subcontractor approved invoices to the ‘facilitator’, who then sends emails to the suppliers and subcontractors, asking if they would like to offer a prompt payment discount for an earlier payment. The ‘facilitator’ then sends the offers to the contractor, who either accepts the offer and makes the payment more promptly, or rejects the offer. The fee is 50% of the discount. I understand that some rather large discounts are currently available.
Where to From Here?
When I was much younger (yes it was back a while) I consulted for a large tier 1 construction company (no longer in business) that achieved a greater profit from delaying paying suppliers and subcontractors and investing the cash, than it made from the construction activities. Construction funded the financial market investments.
It is very clear that those days are over. Construction companies, along with large companies in other industries, are now under greater pressure to manage their Accounts Payable departments and procedures, to manage their cash with extreme efficiency, to make payments within the applicable payment terms, and to report any and all failures.
How Can Cheops Help?
The Cheops Construction Management system has features and functionality to deal with all of this, and to reduce the manual intervention required to a minimum. Detailed reporting and the management of the cash and the cash-flow is key. Find out more about Cheops Solutions here.
Author: Graeme Bottrill – CSSP Cheops Consultant, NSW