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A question of money

Let’s review the basics of getting paid, says Barry, in an analysis of choices contractors make about who to work for.

‘SUBCONTRACTORS fear bad debts owed to the supply chain following the collapse of Buckingham group could top £100m’ is The Enquirer’s daunting headline.

That’s a massive sum that’s going to hit home hard for many specialist contractors. Yet I’m still seeing some specialist contractors concentrating on getting the job done rather than getting paid. Your business will fail if you don’t collect what you’re owed in sufficient time to meet your liabilities.

So, if you want to keep the bank off your back, collect your money when it’s due.

What are the basics of getting paid?
How well you get paid will depend on many factors, including the nature of your business, the type of clients or contractors you work for, the conditions of contract under which you have contracted, your management systems and, in no small part, on the skill and expertise of your people.

And make no mistake, the skill and expertise of your people at several different levels is absolutely vital to success, not just those chasing the payments.

The principles of collecting your money when it’s due are more easily tackled when the various parts are broken down and considered separately.

Choose who you work for
Yes, that’s right, getting paid properly starts with deciding who you will or won’t work for.
That might come as a revelation to you, but if you go off and work for any Tom, Dick or Harry without giving their financial status or payment record a second thought, then good luck to you.
You’ll need it.

I appreciate your decision might be influenced by your workload at the time, and I appreciate it’s much easier to be selective in times of plenty. But, what’s the point of spending your money on doing a job you’re not going to get paid for?

Getting an order is one thing, but what you really need to know is whether that client or contractor will be ready, willing, and able to pay when the money falls due. A customer who can’t, or won’t, pay is worse than no customer at all, and a customer who takes too long to pay, makes unreasonable reductions, or sets off money unfairly, is just as bad.

As Buckingham and others have proved recently, you cannot rely solely on the apparent size of the customer or contractor. Not all large companies pay their debts on time and some national contractors are the worst payers of all.

So how can you make worthwhile credit enquiries about an organisation?
As a minimum, check them out on Top Service or other credit reference agency, but make sure you look at their trading history not just their credit score. And make as detailed an enquiry as possible from other specialist contractors who have worked for this organisation. Here are a few things to ask:

  • What’s the culture of the organisation?
  • Are they helpful or unhelpful to their subcontractors in respect of payment?
  • How easy it is to agree interim applications, variations etc?
  • Are they prone to making reductions or set offs?
  • Most important of all, ask whether or not they always pay on time.

    Don’t be shy about making these enquiries or that making these enquiries might cause offence to potential customers. In well run, objective, organisations nothing should be further from the truth and reputable companies will respect your professionalism.

    Understand the conditions of contract
    You must know and understand exactly what the conditions of contract mean in regard to payment. This is absolutely essential to collecting your money when it’s due. You must first know your entitlements (or rights) before you can begin to enforce them.

    All too often I see situations where the specialist contractor has only a vague notion of what the contract actually means in respect of payment.

    I also see many situations where the specialist contractor sets out payment terms in his quotation only to end up accepting some other terms when the contract is formed. This often happens without the specialist themselves being aware that it’s happened – and then he’s stuck with it.

    If you’re unsure about the contract terms regarding payment, take professional advice and don’t simply accept what the client or contractor offers you. We vet contracts for lots of specialist contractors who then negotiate with the client or contractor to get the terms amended.

    Contractors in particular will often seek to impose onerous payment terms or tie you in to long payment periods.

    The fact of the matter is most contractors will amend their terms if pushed hard/persuaded properly, and you can negotiate a better deal if you try.

    The Construction Act
    It’s been around since 1998 but a great many specialist contractors still don’t understand that there is some statutory protection in the form of the Housing Grants Construction and Regeneration Act 1996 (The Construction Act).

    This Act is applicable to ‘Construction Contracts’ as defined in the act but be careful, it doesn’t apply to every single type of construction project and the protection it provides is limited. When the act applies there are some fundamentals that must be included in the contract, such as:
  • Interim payments (unless the duration of the work is less than 45 days)
  • An ‘adequate mechanism’ for determining how much will be paid and when it will be paid
  • A ‘final date’ for payment in relation to any sum which becomes ‘due’
  • A ‘notice’ telling you how much is to be paid and how that amount is calculated
  • The requirement for a ‘Pay Less Notice’ if the paying party intends to pay less than he has previously said he would pay

    If the contract doesn’t contain compliant provisions, then terms from the Scheme for Construction Contracts will be implied into the agreement. In other words, if appropriate terms aren’t included in the contract, then the terms from the scheme will apply.

    Simple systems work best
    Management systems do not have to be very grand or complicated, but you do need to have some systematic way of keeping tabs on when your money is due. In larger organisations this will probably be taken care of and involve a whole team of people. In smaller companies, it may be down to just one individual.

    Whatever the size of the system it needs to be effective. Take an objective look at your system. Be honest, is it as good as it could be? Does everyone understand exactly what’s expected of them and how they relate to and rely on others to make the system work effectively?

    One of the worst problems I regularly come across in large and small organisations is that of accounts departments chasing payment from accounts departments. This might work fine in some industries, and it might work fine most of the time in your company. However, when there are problems, it can be a recipe for frustration and delay.

    In contractors’ organisations the person who determines what’s paid and when is the quantity surveyor. The accounts department usually only pay what they’re told to pay. Your accounts department can speak to their accounts department until the cows come home but it won’t get you anywhere unless their quantity surveyor releases payment.

    With all due respect to those people in the accounts department who do understand contracts, there are an awful lot who don’t. So, if your accounts department doesn’t understand the provisions of the contract, don’t let them speak to the quantity surveyor. They’ll only get fobbed off with some plausible excuse.

    The net result will be frustration for you when your accounts people report what the quantity surveyor said, and a big smile on the face of the contractor who gets to keep your money for a little while longer.

    Escalate don’t deliberate
    If you’re not getting paid properly then you must take action sooner rather than later. Payment problems never fix themselves. We’re here to help you to get paid and our initial advice is free.
    01773 712116
    Barry Ashmore is managing director and
    co-founder of StreetwiseSubbie.com
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