ContractorCalculator can reveal from its latest contractor survey that a whopping 88% of contractors have been receiving their payment late from their agency or client, with 50% of these being paid more than 30 days after payment is due.
According to Dave Chaplin, CEO of ContractorCalculator, this is a sad reflection of the times, particularly as 37% of respondents suffering delayed payment have a contract with the public sector. However, Chaplin urges contractors not to accept late payment without a fight.
“The survey revealed that more experienced contractors with five plus years under their belts do not suffer to the same degree as those new to the sector,” says Chaplin. “The lesson is that contractors should ensure they have a basic understanding of contract law and know what action to take in response to what are often illegal measures by clients and agencies to avoid payment.”
Contractor payment pain equally shared… almost
Late payment misery is affecting contractors across all contracting disciplines. Those suffering are working for clients in the private and public sectors, and there is no respite whether contractors are working direct for clients or through agencies. However, the survey does highlight some subtle variations:
- 85% of respondents are paid late by their agency, versus 75% paid late by the client when contracting direct
- Contractors report that 88% of public sector clients pay late, versus 76% of private sector clients
- Late payment is rife across IT, telecoms, engineering, oil and gas, interim management and construction.
“Although the agency may also be at fault,” continues Chaplin, “it is clear that the government promise to ensure the public sector’s suppliers are paid promptly has not trickled down to contractors at the coal-face.”
Contractors should ensure they have a basic understanding of contract law and know what action to take in response to what are often illegal measures by clients and agencies to avoid payment
Dave Chaplin, ContractorCalculator
Payments getting later
The majority of contractors have to wait at least a fortnight past the payment due date to get their cash. When asked, ‘How late, on average, are payments being made?’, contractors’ responses were:
- 1 to 2 weeks – 18%
- 2 to 4 weeks – 29%
- More than 30 days – 54%.
And the situation is becoming worse for most, as according to those questioned, timeliness of payments compared to a year ago has plummeted, with contractors reporting:
- Worse payment times – 63%
- Better payment times – 0%
- No change in payment times – 37%.
Chaplin comments: “With not a single improvement in payment times reported, the effectiveness of public sector promises to pay promptly can again be questioned.”
Recession induced increase in ‘administrative’ errors
Clearly, the recession has resulted in finance and procurement departments finding any reason not to pay their suppliers, as so called ‘administrative errors’ topped the bill of reasons for late payment.
Contractors are finding the rules at big clients are changing every month, with invoices not conforming exactly to requirements being rejected. Frequently, contractors are not alerted to this until after the payment is due, when they come to chase.
Top reasons for late payment were:
- Late payment to agency by client – 26%
- Administrative reasons/errors – 41%
- Corporate policy change – 7%
- Other – 26%.
In some cases, no reason was given, although additional reasons reported by contractors included:
- Completed work disputed, or rejected as substandard
- Insolvency/administration of agency or client
- Delays in internal approvals.
“Our latest survey confirms what we’ve been hearing from contractors via the Contractor Doctor; rates are being cut, payment terms amended arbitrarily and contract terminations being unfairly enforced,” continues Chaplin. “This does not bode well for UK PLC’s recovery, as contractors are small businesses and key drivers of the UK’s economy.
“As small businesses, contractors should enjoy the same protection from bullying clients under contract law as any small business,” he adds. “ContractorCalculator.co.uk includes substantial guidance about late payment for contractors on what action they can take and when to seek professional advice, and this is backed up by guidance in the Contractors’ Handbook. I would urge contractors not to take late payment lying down, or the result could be that late payments become non-payment.”