Late payments are a longstanding challenge in the UK construction industry, and most efforts to address this problem have failed to bring about improvements, according to a new study from Construction News and Oracle Construction and Engineering.
And while digitisation can help effectuate needed changes, many organisations in the UK have not yet turned their transformation efforts to the back office.
After a notoriously slow start adopting technology, the construction industry is accelerating digitisation to help address challenges pertaining to project management and delivery.
However, the survey results show that back office systems, such as payments, lag this trend and still heavily rely on disjointed manual processes.
Only about one-third of the 215 survey respondents have either digitised, are in the process of digital transformation, or intend to eventually digitise payments processes. Forty percent, meanwhile, said they want to learn more about digital payment processes first before making changes.
The slow start to digitising construction payment management is concerning, chiefly because effective payment processes have serious implications for the health of project supply chains and for project outcomes generally.
The survey highlights the woes of late payments to subcontractors, including: wasted time and resources (69%), legal disputes and arbitration (38%), and substantial sums either written off or lost (35%).
Relying on a supply chain comprising numerous small businesses that are losing money, wasting time, and facing potential litigation is risky for an industry known for working with thin margins.
Payments haven’t improved in recent years, many respondents said, despite growing attention to the issue. Fully 77% of respondents said construction payment management practices are either the same or have worsened in the past few years.
It’s clear the UK government understands the importance of addressing construction payments, and it has taken steps to that end. For example, it has toughened up a voluntary initiative, the Prompt Payment Code, to “name and shame” companies that take 60 days or longer to pay 95% of their invoices.
However, 69% of survey respondents feel the Prompt Payment Code has had no impact. Many survey respondents – 76% – say they believe that enforcing stricter penalties and shorter payment terms could help improve industry payment practices.
Additional punitive measures to crack down on contractors, government, and private clients that don’t adhere to ‘standard-contract’ terms include enforcing auditing of payment practices and potentially banning late-paying government suppliers from winning public contracts.
At a recent Oracle Construction and Engineering-sponsored roundtable, the purchase ledger manager of a leading subcontractor revealed that to date, many companies’ suppliers aren’t adhering to any payment processes at all, much less digital processes. Indeed, standardisation of processes is one possible solution.
According to the survey, 40% of respondents felt using digital payments systems could help address prevailing challenges by increasing standardisation. A similar proportion - 43% - said that greater visibility into processes by payment stakeholders could also improve practices.
Digitised payments systems could help automate processes and flag compliance requirements, payment dates, and payment paperwork glitches or errors by offering visibility throughout the payments cycle at all levels.
Improving predictable cashflow on projects and paying subcontractors promptly has never been more important. It’s encouraging that we're seeing some construction businesses in UK digitising to increase efficiency, visibility, and control in payment processes.
The construction industry may finally usher in the long-awaited change in payments speed if more companies embrace digital transformation and technology standardisation.
Find out how Oracle Textura Payment Management streamlines and automates an end-to-end payments process with full visibility and easy reporting for all stakeholders.
Watch the on-demand webcast, “Digitizing your sub-contractor payments: Why now is the time”.
Oracle Construction and Engineering, the global leader in construction management software and project portfolio management solutions, helps you connect your teams, processes, and data across the project and asset lifecycle. Drive efficiency and control in project delivery with proven solutions for project controls, construction scheduling, portfolio management, BIM/CDE, construction payment management, and more.