Jacob Austin 00:00:00 Hi everyone, Jacob Austin here and welcome to episode 142 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode is all about late payment, not the theory of it or a history lesson, but what you can actually do about it as a business owner who's short on time. So let's not dilly dally. Let's dig in. Now. Trigger warning. We're going to start with some numbers that may make you angry. In the government's late payment consultation response, published in March 2026. The cost of late payment to the UK economy was estimated at £11 billion per year, and around 14,000 businesses closed annually because they're not paid on time. That's 38 firms closing their doors every single day of the year and at any given moment. Businesses across the country are collectively owed around £26 billion, and it's already earned, already spent against and simply not in their accounts yet. Now think about where a disproportionate chunk of that sits in construction, a sector built on long supply chains.
Jacob Austin 00:01:40 Subcontracts stacked between. Subcontracts where cash enters at the top and has to fight its way down to the bottom. A 2022 study from the University of Huddersfield and Aston University looked at 355 payments across 30 subcontract projects, and they found late payment occurring in 77% of those projects and 46% of individual payments. Nearly half. Not a rogue contractor. Not a bad run, but a pattern that's clear for all to see. Go back a decade further, and the Federation of Master Builders found that 97% of small construction firms felt unfairly treated by main contractors on payment, and only 5% of work was being paid within 30 days. The numbers are slightly different. The behavior seems to be the same. The honest commercial reality that underpins that is that main contractors are using your money as their working capital. Extended payment is not an oversight. It's part of their strategy for funding their work, dressed up in contract terms and normalized into an industry habit. and the result is that many subcontractors don't even register it as a problem anymore.
Jacob Austin 00:03:03 It's just something they used to, something they factor into their cashflow planning from day one. They absorb it. They fund it. They call it the way things work. And that's the most dangerous point of this episode. Not that late payment happens, but that the industry has stopped expecting anything different. But the problem is, as soon as you accept that as normal, you've handed over a significant commercial lever that the law actually gives you. Let's be precise about what the law actually says, because this matters when you're deciding whether to push back our favorite piece of legislation, the Good Old Construction Act, is one of the most commercially powerful pieces of legislation written for the industry. Its express purpose was to get cash flowing through the supply chain. Parliament looked at exactly the problem we're describing here. Main contractors holding money at the top of the supply chain and decided to intervene. So under the act, every construction contract must have an adequate payment mechanism. There must be a due date. There must be a payment notice issued within five days of that due date, specifying the sum due and the basis of calculation.
Jacob Austin 00:04:18 There must be a pay less notice if the contractor wants to pay less than the notified sum, and that notice must be served no later than the prescribed period before the final date for payment. This differs from contract to contract, so you have to read your own subcontract details to work out what that means for you. But under the scheme for construction contracts, which is the piece of legislation that applies in default scenarios, that is where your subcontractor has been deficient. The default period is seven days before the final date for payment. If that window is missed, Payments should be made in full and the most powerful bit for me. If you don't receive the money by the final date for payment, you've a statutory right under section 112 of the act to suspend performance that requires a minimum of seven days notice stating the grounds. It's not a breach of contract. It's a right given to you by the law and when you exercise it. The Construction Act entitles you to recover any reasonable costs that you incur as a result of that suspension.
Jacob Austin 00:05:28 So if you demobilize plant and then you have to bring it back to carry on, you can recover that cost as a legitimate suspension cost. That's one of the most powerful tools that subcontractors have, but it very infrequently gets used. I've received one once. It was the most uncomfortable few days that I've had in my career, and thankfully it was some time ago and I've learnt from it and never done it again. But that discomfort that I felt is because the whole of the main contracting organization I was working for was turning against me, criticizing me for losing program time because I'd not paid a subcontractor. When you're working for a large main contractor, that is huge internal political power that you're wielding against the person who should be paying you. There will be instances where it doesn't work, but I'm telling you for sure, the majority of times it will use it. The other right that the Construction Act gives you is, of course, adjudication. And you can refer a dispute at any time given that decisions are made within 28 days of referral, which can be extended if both parties agree.
Jacob Austin 00:06:42 It's designed to be fast and to get cash moving to where it is owed, if that's you. This is another vital tool that gets woefully Under-used courts enforce the adjudicators decisions, and main contractors know it as two powerful tools available at your discretion. And on top of that, there's also the Late Payment of Commercial Debts Act, which entitles you to charge interest on the money you've not received. Once you've established that an amount of money is due and it's not paid, you can also make use of online money claims services operated by the courts. If you do a quick web search for make a court claim for money, you'll find the Gov.uk website. There are helplines to help you fill out the online forms, and you can use this service as a means to getting the cash in your bank. Often what happens, though, in the contracting forum is one of three failure modes. Each one of these is essentially commercial self-sabotage. The first is sloppy applications. It's really difficult to enforce a payment regime if your applications are all over the place.
Jacob Austin 00:07:56 Your applications need to state clearly the sum that you're applying for with a basis of calculation, and be submitted in accordance with whatever the subcontract specifies. So if the contractor lists a particular timing, a format, a way of submitting, you need to comply with that, not just do what you do on every other job. If your application is late, it goes to the wrong address. It doesn't clearly identify itself as an application for payment. Then you're handing the main contractor a procedural point. You're not triggering that payment mechanism properly. So the notice clock doesn't start cleanly. If it doesn't start properly, it's hard to track. And then when the payment falls late, you're arguing from a muddy position. It's weaker than it needs to be. Help yourself by being really disciplined about your application process. Use whatever reminders you need to do to make sure you get your applications in on time. If that's writing a note on your fridge. Sticky notes on your monitor. Reminders on your phone. Email reminders. Dummy meetings that apportion the time you need to submit your application.
Jacob Austin 00:09:09 Any one of these. Whatever works for you. Make sure you get your application in on time. The second failure mode is silence. Payment dates pass. No money arrives. You chase it informally. Sending an email. Just checking in on payment. You get a vague response about cash flow or some client delay upstream. A week passes. Two weeks. You've been paid late before it got sorted last time, and you assume it'll get sorted again this time. By the time you've thought about your options, you're so far past the payment date. The momentum for getting some real leverage and getting the money in your account has gone. You're missing the opportunity to create the commercial pressure that that suspension notice creates for you, not because it's expired, but just because you haven't used it. You've been silent. Doing nothing gets you nothing. Creating pressure gets you paid. The third failure is the relationship trap. This is one that costs money over and over again. You don't push back on the main contractor because they're always dangling a carrot.
Jacob Austin 00:10:21 we haven't paid you on time here. Don't worry. We've got another job for you. You'll make more money on this one. You've already worked for this contractor for years. So you want to maintain that relationship. You don't chase them formally because you don't want to rock the boat. You're absorbing late payment. All of the interests that you're missing out on, or you're being charged as an overdraft fee. Maybe you don't even bother calculating it. You assume that the future I renew is worth more than the interest on the overdue amount. That might be right. It might not be. But you're trying to work for somebody. You're maintaining a relationship with somebody that isn't treating you with any respect. They're paying you on their terms when they want to. They're failing to keep their end of the bargain. You do the work for them. They need you to do that work because they can't do it themselves. But they're not giving you the common courtesy of paying you on time. What the main contractors have learned industrywide is that subcontractors will tolerate late payment, and partly it's because the commercial cost of pushing back feels higher than the cost of waiting for that money.
Jacob Austin 00:11:30 That calculation changes only when you start making it, only when you start realizing how much it's costing your business and making that cost of late payment real. Now let's have a think about a scenario. Let's say you're an electrical contractor and you're on monthly interim applications. Your April application went in on time. There's £140,000 that you've applied for, and the final date of payment under your subcontract is the 28th of May, being one month on from the April date. And that 28th of May comes and it goes. Nothing lands. Big surprise. You send an email chasing the money and you get back. Payment is being processed. Expect it within the week. But that week passes. We're now on to the 5th of June. Still nothing. And this is what most subcontractors will be doing at this point. Waiting, half heartedly, chasing and hoping. But here's what the law allows you to do in that situation. Your application, first of all, has become the default payment notice because the main contractor has failed to issue their payment notice on time, they've not served a painless notice.
Jacob Austin 00:12:46 That means under the act, the notified some your application figure must be paid. The final date for payment has passed so they are fully in breach of contract. You've now got two parallel options. First, serve a written notice of your intention to suspend the works under section one on two with seven days clear notice, and the grounds stated that notice is not just a threat, it's a formal statutory step that, once served, starts the clock running to you pulling off site. It's like a bomb going off inside the contractor's organisation because most programs can't absorb a key subcontractor downing tours and stopping work. Secondly, you've got the right to adjudicate for a debt of that size. The process is relatively quick, costs are manageable, and the risk of a bad outcome is low because your applications in order. The point is not that you're going to pull both of these triggers every time. The point is, you have them both at your disposal. You make a conscious, commercial decision on both options, rather than waiting and passively letting your leverage disappear.
Jacob Austin 00:14:02 Assuming nothing can be done. Protecting yourself doesn't require a big commercial team, it just requires consistency. The first habit is that application discipline. Knowing your due date. Knowing your submission deadline. Submitting on time every time in the correct format to the correct address, and by the method specified in your subcontract key records to keep our read receipts. Curious confirmations a portal timestamp if it's submitted online. Information that allows you to demonstrate you served your subcontract application on time that prevents the main contractor from muddying the dates and muddying the process. The second habit is a payment tracker. This is a really simple spreadsheet showing the due date, final date for payment, amount applied, amount paid, date paid, and any variances. You can set this up once at the beginning of your job. Drop your valuation dates into it, put your payment terms in there and you can work out the rest by adding and subtracting from them. It's really easy, and it means that you're always able to chase with a clear knowledge of what should happen and when it should happen as well.
Jacob Austin 00:15:19 It takes away the need for you to remember which job should be paid and when and by how much. If you run that kind of spreadsheet one per job, it makes it really easy. It stops you needing to recall figures from memory. If you're in a site meeting or you're on the phone to the main contractor, so it gives you information when you need it, which puts you on the front foot when you need to negotiate. And of course, it leads into the third habit, which is written response for late payment. The moment your payment date has gone by. Without money in your account, a letter or email needs to go the same day. Not a chase, not a request, but a formal notice that states the due date, the final date for payment, the amount outstanding, and that you intend to suspend the works if you're not paid within seven days. Reserving your rights under the Housing Grants Construction and Regeneration Act. This does two things. It makes it really clear to the contractors commercial team that you know your position.
Jacob Austin 00:16:23 It provides a contemporary record that starts the clock for any enforcement steps, and none of this requires solicitors or claims consultants on standby. It just requires that tracker and the discipline to actually use it. It's worth mentioning as well that there is incoming legislation that we discussed a few weeks ago. The government's confirmed its intention to introduce a mandatory 60 day cap, which is too long, in my view, on payment terms, meaning any contractual terms extending beyond 60 days will be unenforceable when a large business is playing a smaller supplier. Statutory interest at 8% above the base rate will become absolutely mandatory with no ability to contract that out, and the Small Business Commissioner is being given enforcement powers, including the ability to define persistent late payers. Whilst that legislation is not yet passed, the direction is clear and the construction retention ban should be implemented with it. Although it looks like that may be heading for a further consultation. Watch the space, but don't wait for it to protect yourself. The tools are already there, So key takeaways from today.
Jacob Austin 00:17:41 Late payment in construction is no accident. It's being done by main contractor on purpose for their own cash flow benefit. The statistics are horrible and whilst you should plan for late payment when it comes to your cash flow, you shouldn't just accept it as unchangeable. The Construction Act gives you real teeth payment notices. Pay less notice. Windows. The statutory right to suspend and adjudication. These are not theoretical options. These are enforceable rights that you can use to get your hands on your money. If the main contractor misses the payment notice window, if they miss the pay less notice window, the notified sum is what's legally due. The relationship trap staying quiet to protect future work. You may well think it's in your interest, but how much is the contractor looking out for those interests too? If you've got a genuinely good trading relationship, that relationship should work both ways, and that should mean you getting paid on time. There is some legitimacy to maintaining that relationship, but make the decision with open eyes and do it consciously.
Jacob Austin 00:18:53 Just being silent by default is not a strategy. It's you being taken advantage of by the main contractor. Three practical habits cover most of the exposure application discipline, a payment tracker, and a written response protocol that puts a marker in the sand as soon as your payment goes unmade. And finally, incoming legislation is going to tighten payment terms and strengthen enforcement. But it's not yet enforced. However, the tools that you have available to you now, I think are sufficient enough to change how you're treated on like payment if you use them. And that draws us to a closer today. My mission with this podcast is to help the million SME contractors working out there in our industry. And so I really need your help. If you've taken some value away from today's episode, then please share the show and pass that value on to somebody else who'd benefit from hearing it so that I can help as many people as possible. And thanks for tuning in. If you like what you've heard and you want to learn more, then please do find us at www.SubcontractorsBlueprint.UK.
Jacob Austin 00:20:06 You can also find us on all your favourite socials again at Subcontractors Blueprint. And remember miss the contract detail and the commercial risk falls on you. Thanks all. I've been Jacob Austin and you've been awesome.
