On Monday 23rd April, a group lead by Peter Aldous MP handed in a petition to 10 Downing Street in support of an amendment to the Housing, Grants, Construction and Regeneration Act 1996 regarding the protection of retentions.

In the construction industry, the practice of retentions is the withholding of money in lieu of outstanding work. In domestic terms, it’s basically a hedge against snagging. However, this has come to be abused and used as a way of holding back money to help bolster contractor balance sheets. Applied across many suppliers, to a single contractor it can amount to a large sum of money. Essentially it can become a form of late payment.

In the UK the construction industry is hemorrhaging almost £1m each working day, £4.5m a week, £20m a month, mostly from SMEs. Following the Carillion liquidation, there is an unprecedented campaign from industry calling on the government to act.

David Frise, CEO of BESA, and Peter Aldous MP outside 10 Downing Street

Proposals to stop the abuse of retentions have been made before, but in January 2018 the Aldous Bill passed its first reading unopposed. The Bill seeks to amend the Construction Act, to ensure that retention monies are held in a third-party trust account thereby leaving them less vulnerable to abuse.

To put this in perspective, abuse of retentions has been legislated against in many other countries, including the USA, Germany, France, New Zealand, Australia and Canada. The U.K. is lagging behind.

The bill has 12 parliamentary sponsors across all parties. It is supported by more than 110 MPs, again across all parties and it has official support from more than 70 trade and industry bodies of which The Prompt Payment Directory is one.

The bill goes for its second reading in the House of Commons on Friday 27th April.

The forthcoming introduction of the national minimum wage should sharpen minds on the issue of late payment.

Last year the government announced a move from the national minimum wage toward a national living wage which will come into effect in 2016, as a result businesses are now having to prepare for significantly higher wage bills, already one of the largest costs that any organisation has to carry.

The FSB, in its quarterly survey on confidence among 1,500 small businesses, noted that there was real concern over growth with the number of businesses expecting to see growth having fallen. Hiring intentions have cooled and investment plans are stalling.

Recent findings from Bibby Financial Services indicates the number of businesses being paid late is on the rise and this presents a real challenge to UK businesses as a whole and small businesses in particular.

It is literally vital that small and mid-sized businesses do all they can to mitigate the possibility of late payment. That the late payment of invoices has a huge impact on cashflow, business growth, jobs and even business survival is well documented, so with the upcoming rise in wage bills the pressures are, unfortunately, going to increase.

Now is the time to prepare. Businesses entering into new customer relationships, and even those in existing ones, need to watch out for the spectre of late payment.

There are many excuses that customers deploy to postpone payment of invoices, some genuine, some not. By watching out for these and asking the right questions before inking a contract suppliers can take the initiative to mitigate the impact of late payment without it necessarily costing money in the form of discounts for prompt or early payment or worse still, legal fees.

In circumstance where new contracts mean hiring new staff that will have to be paid at the national living wage, it makes sense to do as much as possible in advance to ensure that the income will arrive on time. This will help prevent the pain of possible redundancies and all the accompanying difficulties.