Construction companies need to cash in on their assets according to research

Ultimate Finance, which provides funding to SMEs, is keen to raise awareness among construction companies that outstanding billing, be it ‘Uncertified Applications for Payment’ or invoices are one of their most valuable assets to help them avoid cash flow difficulties.

The campaign is on the back of research from the Asset Based Finance Association (ABFA) which has revealed that SMEs in the construction industry are second only to the manufacturing sector, in having the most unpaid outstanding billing.

Construction companies are currently owed £7Bn in outstanding billings, which represents 16% of annual turnover in the sector. However when it comes to payment times, construction companies are treated the worst, having to wait an average of 107 days before their billing is settled.

Tim Wilkinson, sales director of Ultimate Construction Finance, believes the sector is lagging behind other industries when it comes to treating their outstanding billing as an asset with which to leverage funding.

“With banks still reluctant to lend and companies taking longer to pay, businesses across all sectors are increasingly turning to receivables finance,” he said.

“Opinions have changed about using this type of facility, as companies realise that they can have the money owed to them within as little as 24 hours, rather than having to wait for months before they get paid.

“We understand that companies don’t want to upset their customers by putting too much pressure on them to pay but, at the same time, it is grossly unfair to have to wait so long as goods and employees have to be paid for in the meantime, which puts a huge strain on the cash flow. It has even caused some companies to go bust!

“As a business Ultimate Finance has increased its live clients by 55% and increased the money we are lending out against assets, such as ‘Uncertified Applications for Payment’ and invoices, by 52% over the last 12 months, demonstrating the growth in popularity for this kind of lending.

“However many companies within the construction sector are still unaware that outstanding billings gathering dust in a file can be used for the day to day cash requirements of the business. In addition, freeing up the money can also be used to enhance the trading relationships with key suppliers where contract wins, or pending new contracts, may require increased credit lines or initial cash payments to obtain materials and labour resources that are crucial for the successful mobilisation of the contract.

“Looking to the future, there has been much commentary in the media about skills shortages in the construction sector which could result in wage rises of around six percent, which is three times the national average wage increase.

“Add to that the increase in the cost of materials and you can see why building in London and other conurbations has risen dramatically. According to recent research, the capital is the most expensive city for building in Europe and the second most expensive city worldwide.

“All these issues directly affect the cash position of construction businesses across the UK. Therefore a review of the working capital position along with a review of the potential value to be released in outstanding billing may well provide an additional edge to help to continue to drive the construction sector forward.

“It may therefore be a worthwhile exercise to calculate how much you are owed in outstanding ‘Uncertified Applications For Payment’ as well as invoices and then consider how the company could benefit if they were all paid now.”

Ultimate Finance has offices across the UK.

 

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