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3 ways to avoid late payment

Published by Total Contractor, November 2018

Since news emerged at the start of the year regarding the liquidation of construction giant Carillion, there has been a crackdown on late payments, with the government releasing regulations in an attempt to resolve the delayed payment crisis. But what are the solutions to stop late payments from occurring? Matthew Jones, discusses how the industry might tackle this issue collectively to put better payment processes into practice

1. Online solutions to manage applications for payment

A potential solution is to digitise all payment and invoice processes so that contractors pay their subcontractors in a timely fashion whilst maintaining a healthy, risk-free environment for themselves.

Designed for medium to large contractors, systems such as WebContractor, for example, manage the subcontractor applications for payment process, as well as other subcontractor concerns; insurances and bonds, self-billing invoices, authenticated VAT receipts, minor works and word order instructions for example, offering a great solution for the industry as a whole.

“With the right technology, processes associated with applications for payment can become efficient, standardised, transparent and quick”

Subcontractors access an online portal for easy and timely submission of payment applications while contractors take advantage of the workflow and reminder features designed to streamline the management of approvals. For contractors, this is a great support mechanism, designed to enhance visibility, control, and compliance of the subcontractor application process, lightening the associated administrative workload.

Contractors benefits from increased efficiencies, improved clarity around cash flow, and a far more accurate understanding on their liabilities at any given time. Potential risks, such as litigation, can ensure better traceability and reliability when using online software.

With the right technology, processes associated with applications for payment can become efficient, standardised, transparent and quick. Most importantly, the automation of these process can allow for tracking and management across the whole supply chain, which reduces risk and help to build a clear and transparent picture of the finances affecting the business.

2. eInvoicing

Another online solution which streamlines payment processes is eInvoicing. Sending and receiving invoices electronically is one of the safest, most efficient ways to combat late payments. eInvoicing offers companies numerous strategic benefits including significant reduction in the rekeying of information, automated invoice validation and integration with back office accounting systems, while reducing costs and paperwork.

“Not only do digital processes alleviate any messy paperwork from mounting up, they ensure both contractor and subcontractor are kept up to date with payments and invoices”

It is a great solution across the entire construction supply chain for streamlining the management and payment of invoices. eInvoicing improves accuracy and cash flow, ensuring companies manage their payment processes effectively and increase their likelihood of receiving supplier discounts.

Not only do digital processes alleviate any messy paperwork from mounting up, they ensure both contractor and subcontractor are kept up to date with payments and invoices. Time is always of the essence, especially in terms of managing cash flow, meaning digital platforms are sensible and necessary solution to combating late payments.

3. Government support

Pledges were made in April 2018 in lieu of Cabinet Minister Oliver Dowden’s decision to crack down on late payments. Since this decision, Build UK published information from data submitted by the Duty to Report on Payment Practices and Performance, highlighting the top contractors responsible for late payments.

“Turning to more rigorous, digital payment processes will preserve contractors and subcontractor integrey and the wider construction industry as a whole”

In order to prevent late payments, the government will offer advisory, constructive workshops to help companies with their project management and payment plans. Solutions such as these should help prevent any delayed payments, allowing contractors to the time to consider the impact of their delay, providing contractors with helpful advice to better manage their current payment processes. Overall, this initiative will ensure employees and businesses will not suffer as a consequence.

Even though it was a dark time for the construction industry, many positive lessons for the future can be learnt from Carillion’s collapse. Seeing the implementation of government intervention signifies the level of support it is willing to give the industry.

But internal measures must also be taken by the industry itself, where digital application for payment and subcontractor management platforms are a worthy solution. Not only do these systems ensure subcontractors get paid on time, they reduce risk to contractors’ businesses.

Turning to more rigorous, digital payment processes will preserve contractor and subcontractor integrity and the wider construction industry as a whole. 

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