The issue of retentions and late payments has been in the spotlight more recently following the Carrillion collapse. But the reality is that this practice has been ongoing for years and it’s having a major impact on SME’s who make up an important sector of the construction industry. The tough current economic times are making things even harder and this is putting greater pressure on small businesses who are struggling to maintain a positive cash flow. The impact of late payments is often the last straw breaking the camel’s back.

Alarming statistics

A recent report by the Prompt Payment Directory reflects that the number of SME business owners affected has increased from 27% in 2017 to 48% in 2018, with many of them admitting to suffering from extreme anxiety and stress due to cash flow issues. At least 67% have gone without a personal salary in order to keep the business afloat. More than a third are struggling to make mortgage payments and a quarter have had to sell their personal properties and downgrade their lifestyle or rent a home.

This is alarming, especially considering it’s a situation that could be avoided if prompt payments were instituted. When following up on payments from clients, the majority of SME’s are told that the clients are awaiting payments, or an even more feeble excuse: “The accounts person is away.”

Government reform needed                    

There are calls from the industry on government to institute reform to address retentions and have them completely scrapped by 2025. The Aldous Bill which is currently being read in parliament is set to institute retentions reform, but some are of the belief that its impact will not be enough to help the small contractors that are at the end of the supply chain and most affected by late payments.

Late payments as a practice needs to be abolished if the industry is to enjoy positive growth. Collaborative and mutually beneficial working relationships are the way forward. But will the industry respond? Since January industry sector groups have been collectively lobbying for retentions reform and recently several tier one main contractors announced they would be scrapping retentions. This is certainly a step in the right direction. Now what’s needed is for government to do their part to ensure protection is put in place for everyone, including the small contractors in the industry.