For contractors and subcontractors, ensuring payment can be as tough as landing new work.
The Growing Problem of Late Payments
Payment delays can create cash flow crises, especially for smaller businesses lower down the supply chain that are often caught in a complicated web of contractors, subcontractors and suppliers.
Many construction businesses consider late paying customers one of their greatest financial risks. According to Sharpe Pritchard, UK construction companies are owed over £30 million in unpaid invoices, making financial instability a pressing concern in the industry and highlighting the significant impact of delayed payments.
While some delays are genuine, others are strategic - delaying payment to protect their own cash flow at your expense. Here are some of the most common issues that arise and how you can tackle them.
Retention Payments Being Withheld
Retention payments, typically set between 1.5% and 5% of the contract value, serve as a safeguard to ensure both project completion and quality standards are met. However, these funds are often withheld long after their due date, placing significant strain on subcontractors. Construction & Civil Engineering Magazine highlighted that, in some cases, withheld retention payments account for 50-100% of a subcontractor’s profit margin on a project, effectively erasing their earnings.
How to Protect Yourself:
- Check Your Contract: Ensure retention release dates and late payment penalties are clearly outlined.
- Issue a Formal Demand: If all work has been signed off and no issues remain, send a written request with a clear deadline.
Strengthen Your Paperwork: Clearly state late payment terms on invoices, such as requiring any disputes to be raised within 14 days and setting a firm due date for payments.
Being proactive in managing retention payments can help you avoid unnecessary disputes and delays.
Liquidation to Avoid Financial Obligations
When a limited company faces financial trouble, its directors may initiate a Creditors’ Voluntary Liquidation (CVL), shutting down operations and leaving creditors unpaid. Unfortunately, this doesn’t prevent those same directors from starting a new company and continuing business as usual.
What Can You Do?
- Monitor Credit Risks: Keep a close eye on customers with poor payment histories or signs of financial distress.
- Act Quickly: If payments are overdue, escalate the issue before a business enters insolvency.
- Consider Professional Support: Working with a debt collection agency can improve your chances of getting paid before liquidation occurs.
Once a company enters liquidation recovering debts can become nearly impossible, so early intervention is key.
Why Redwood is the Smart Choice for Debt Collection
At Redwood Collections, we help construction businesses recover outstanding payments while safeguarding their professional reputation. Our deep understanding of the industry's financial complexities enables us to deliver effective, results-driven solutions with professionalism and persistence.
What We Offer:
- Expert Industry Knowledge – As one of our specialist sectors, we understand the unique challenges of debt recovery within construction.
- Professional and Persistent Approach – Our team operates with tenacity and integrity to secure the best results.
- Tailored Debt Collection Strategies – We work to protect your cash flow while preserving client relationships.
By outsourcing your debt collection to us you can focus on securing new contracts and completing projects. To contact us directly please call 020 8080 2888. For more information, visit our construction page to discover our industry expertise.
