- I’m not able to pay my suppliers and / or staff
- If I don’t sort this cashflow issue out my business could go bust
- I’m going to damage the relationships I have with my supply chain because I can’t pay them
- My supply chain is not going to perform now I’ve knocked them for money
- I’m stressed and I’m not getting enough sleep
Often this is because the Client / Main Contractor hasn’t been paid themselves. This can be due to a lack of performance of your client under their contract. Sometimes their client is being unreasonable with payment. Inevitably, the pain is often passed down the supply chain.
It should be noted paid when paid clauses are not legal, but in practice it happens. It happens a lot! This is why having good Clients is so important.
“Charlie, that’s all well and good, however it doesn’t help my organisation now.” I hear you, and good point mysterious stranger!
Take a strong mental note of this:
When organisations cannot pay all their debts, they will tend to prioritise
- the parties who have the strongest legal grounds for payment;
- the parties most crucial to their business;
- the parties they like; and
- the parties that shout the loudest.
All 4 of these points could be discussed in their own separate articles, however I want to talk about the first point. This is because it builds strong fundamentals in the business commercial processes.
All Clients are keen to avoid legal proceedings…especially those they believe they are going to lose. They are horribly expensive, time consuming, often unpredictable, can incur reputational damage, and can threaten the existence of the company.
I’m not for a second suggesting we aim to take legal action. Far from it.
What we want to do is paint the picture that if legal action were taken, it would clearly result in a win for the payee. This builds a strong negotiating position which will not only aid in improving rates of payment, it will increase your success in securing variations. This is all achieved quite subtly.
Our goal is to comply with the contract as much as we can. It is best to put procedures in place which make this behaviour automatic. Some of the things you can do right away are:
- Issue payment applications on time. Many contracts require you to issue a payment application. Read the contract and ensure you know when you need to submit your application. If these are late, you can lose entitlement to be paid in that month.
- Issue variation submissions on time. Particularly on NEC contracts as they have time bar clauses. Note that any contract can contain these clauses (such as JCT) because the terms can be amended. Don’t lose entitlement because of a technicality! Also don’t hold the notice waiting to finalise all the costs. It is better to send a notice saying the event has happened and you don’t know all the costs yet. Send this later.
- Issue extensions of time submissions. Similar to the above. Send the first notification as soon as you can. Establish the time implications later. Don’t lose entitlement.
- Send regular emails notifying the Client of the issues. These emails do not have to be contractual or particularly complicated. In fact I recommend avoiding legal language altogether. Simply state facts, samples as follows:
“We have not received payment which we were expecting on [Insert Date]”. Please advise when this will be rectified.”
“We haven’t received our a payment notice on [Insert Date]”
“This [Explain Event] has occurred causing [Describe Issues].”
“We still haven’t received a response to our email dated [Insert Date]”
- If these emails are unchallenged, they are often treated as fact. Keep emotions out of these emails where possible, stick to facts.
Of course I appreciate some of this may seem more simple than it is in practice! If you would like to know how we can help your organisation, please give us a call. All initial consultations are free.
As Chartered Surveyors, you can have confidence in the fact that we are Regulated by RICS.