Late payment? Big boys force extended credit on smaller firms

Big contractors are forcing smaller firms to accept extended credit terms to avoid being branded late payers, a report by the Institute of Credit Management has claimed.

The warning comes as the ICM published the latest league tables showing average payment time in construction.

ICM director general Philip King said: "It is a tactic we are seeing more frequently and one that can only have negative consequences within the supply chain.

"There's an element of small businesses that are just desperate to get business and will bend over and accept what would normally be unacceptable terms, and that's fine, that's what good credit management is about. The problem comes when it is imposed, sometimes after the event," he added.

But Mick Quickfall, managing director of Federation of Master Builders-member Quickfall Construction, said he wasn't surprised at the practice, because bigger firms need the cashflow to support several developments at once.

"From an accounting point of view, any major contractor will keep the pennies in the coffers for as long as possible. Until recently, I ran a large contractor and it used to use the same tactic. Major contractors don't do it out of a reluctance to pay out, but a reluctance to release the money because it's needed elsewhere," he said.

Quickfall recommended that subcontractors should be allowed set-up costs of around 5% up front, contractually guaranteed, in the same way that clients paid main contractors set-up costs.

Among other firms in the table were: Higgins (21 days) McNicholas (23 days) Carillion (80 days) Barhale Construction (66 days) MJ Gleeson Group (27 days) and T Clarke (69 days).

For a complete version of the list, see: ICM's latest league tables showing average payment time in construction.

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