Late payment: A fast buck (Comment)

Carillion has blotted its copy book this week for being slow to pay its suppliers (see story, right). According to new research from the Institute of Credit Management (ICM), it takes an average of 80 days to pay, while its sister firm Carillion JM averaged 99 days - hardly good news if you are one of their suppliers.

Of course, those who are looking for optimum financial performance may say that it's a reasonable approach. Keep hold of your cash and use it for cashflow until you really, really have to pay. If you're the company holding the purse strings, it's certainly cheaper than ratcheting up the overdraft. But is it a sustainable approach?

The answer to that question is a resounding 'no'. It is not fair to leave suppliers hanging on for payment - especially in the full knowledge that they are likely to have firms relying on them for prompt payment.

The government's recently introduced legislation on late payment is clearly a toothless tiger. It is having no effect, even on a business that relies largely on the government for its work, and that can't be right.

At a time when businesses are keen to demonstrate their sustainability credentials to clients in order to win more work, their treatment of their supply chain should be taken into account, too. It can hardly be sustainable to keep smaller businesses hanging on for three months or more for payment - and that is something all clients should consider before appointing main contractors.

The suggestion that subcontractors should receive setup costs of around 5% at the start of a project is worth considering. It doesn't address the crux of the matter, but it would help offset some of the financial stress until all contractors adopt the approach of the industry's best performers. Alternatively, maybe it's time to look at project bank accounts again.

As a subcontractor, voting with your feet isn't always possible. But at a time when there is so much work going on, it's clearly an opportunity to negotiate - or to opt to work with some of the industry's better payers.

(Contract Journal, 8 August 2007, p 2)