With a complex hierarchy of contractors and sub-contractors, debt collection in the construction industry can be a challenging process, particularly if you’re a small subcontractor at the bottom of the chain. Recent research by innovative payment platform Lopay shows that half of small constructors view late-paying customers as the greatest single threat to their businesses.
We’ve covered some of the top non-payment excuses and how to deal with them in this previous blog. You may also have encountered one of the following issues, which are sadly all too common in the construction industry…
A retention payment is being withheld
Retention is a proportion of the project fee, typically between 1.5% and 5%, which is held back to ensure the project is completed in full and any snagging issues are rectified.
Unfortunately, retention payments are often not paid when they’re due. If that’s the case, you should first check your initial works contract. It should specify the due dates for payment and any penalties for late payment. If there are no outstanding snagging issues and the work has been signed off, you should send the customer a formal written notice that the payment is due and set a deadline for receipt of what you’re owed.
Remember, when it comes to retentions, it’s important to make sure you pre-empt any problems by getting your paperwork in order. Make sure your invoices clearly state the terms relating to late payment. For example, you could say that all queries must be raised within 14 days of receipt and that all undisputed invoices overdue by 14 days may be subject to legal proceedings.
Liquidation to avoid debt
If a limited company is in financial trouble, the directors can initiate a Creditors’ Voluntary Liquidation (CVL), which means the business ceases trading and an insolvency practitioner is appointed to wind it up. Unfortunately, if there are no funds available, even after the sale of assets, this can result in creditors failing to receive all or some of the money they’re owed.
The sting in the tail is that there’s nothing to stop the directors of the insolvent company starting another business, unless they’ve been issued with a disqualification order.
Unfortunately, in this situation there’s not much you can do to recover the money you’re owed. That’s why it’s so important to keep on top of overdue debts and to have robust credit control processes in place, so that you have a better chance of getting paid before the company closes down and it’s too late.
Why Redwood is the smart choice for debt collection
At Redwood we have extensive experience of supporting clients in the construction industry, including many small contractors. We understand the commercial dynamics which are unique to the sector and will operate with tenacity and integrity to achieve optimum results.
Not only can a debt collection agency provide more persuasion, but valuable advice and support to reduce the risk of having to write off a debt because of a CVL.
We can relieve you of the hassle of dealing with debt collection, allowing you to focus on completing the next job and winning new customers, laying the groundwork for your business to Grow Stronger.
