Law Change Encourages Quick Payment For Construction Contractors
As of the 1 October the Housing Grants Construction and Regeneration Act 1996 will include new legislation designed to encourage prompt payment for suppliers of construction companies.
The new process will mean that once payment is due, the payer will have five days to issue a payment notice with the final amount owed. If they do not, the supplier can then issue default notice for the amount it believes it’s owed. If the payer believes the default notice claims too much money, it has seven days to issue a ‘pay less notice’. If it doesn’t issue this notice within a week, it will be forced to pay whatever amount the supplier claimed in its default notice.
Persistent late payment is a problem across all industries and company sizes and has been further exacerbated by lean economic circumstances. Until now, there has been no penalty for those who drag their feet over payment and little that suppliers can do to enforce settlement.
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Andrew Jesse, VP at Basware UK commented: "Anything that can be done to encourage timely payment in these industries will be of vital importance. After a gruelling few years for the construction industry it’s important that suppliers have support in chasing down customers with poor payment records.”
Jesse also commented that construction companies would need to take action to ensure that their systems are not hindering their ability to repay.
“Inadequate systems and poor visibility into cash flow can still stand in the way of companies being able to pay out on time. Before this directive comes into place construction companies will need to ensure that their contract and invoicing systems are up to speed. If a company loses four days out of five in simply matching and reconciling work against contract and invoices they are severely impacting their ability to avoid overpayment and repay within the confines of the law."
Whilst regulatory requirements may force construction companies to automate there are business benefits to be found from these system overhauls. Adopting more efficient automated systems can free up finance clerks from routine matching tasks, reduce processing time and rapidly escalate invoice to contract discrepancies.
When it is passed into law, the legislation will also change the way contractors and sub contractors handle payment. From 1 October, payments to sub-contractors can no longer be made conditional on receiving payment from the main contractor.
The changes apply to any construction contract entered into on or after 1 October.
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