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Hi all,
Jacob Austin here from Show Zone.
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And welcome to episode 48 of The
Subcontractors Blueprint, the show
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where subcontractors will learn how
to ensure profitability, improve
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cash flow and grow their business.
Today's episode, number 48,
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is about an old favorite the top ten
issues that caused late payments.
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If you're new to the show,
please subscribe for more user
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friendly advice on all things
subcontracting. And let's dive in.
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So late payment to
subcontractors continues to be a
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blight on the industry.
And cash, as it is in a lot of
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industries, needs to change hands
really quickly to keep their big
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old wheels of the industry turning.
And I think it's because you're sort
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of at the bottom of the contractual
food chain that subcontractors seem
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to be treated the most unfairly.
And whilst there are some statistics
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out there that show that things are
on the mend or rather improving,
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I suspect that contractors
report a lot of those statistics
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themselves and then giving
themselves a good old pat on the
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back for how well they've done.
If politicians can do it well,
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why not a main contractor?
So here's ten things that you
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can watch out for.
Or make sure you get right to
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try and get your hands on your
money when it's due.
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And we're going to start with
the most obvious one, which is
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knowing when to ask for the money.
So missing your application date
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sometimes can result in your
payment not being due until the
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next valuation date.
So that means if you miss by 2
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or 3 days, you could be waiting
for another 30 days,
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or rather to the end of the 30 day
cycle before your payment is going
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to be due and the NAC subcontract
would support your application
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in being deferred like that.
So this is not even something
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that a main contractor has
cooked up by himself.
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So being slow to apply or being
disorganised about how you're
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getting your applications in can
really hurt your cash flow.
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So there are contractors out there
who want their applications in middle
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of the month, and there are some
that want them right at the end,
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and there are some that want
them anywhere in between.
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They tend not to be the first
week or so of the month,
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but I just couldn't say there is
no hard and fast rule for what
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the valuation dates are, other
than they have to be communicated
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to you in your subcontract.
So the answer to find out when your
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applications or your invoices are
due is to get the document out
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and find the schedule or dates.
So in there, the contractor is
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either going to tell you a list of
valuation dates, or they're going to
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describe a monthly cycle of when
the valuation is going to be due,
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and how many days until the payment
date and the payment notice date.
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And what that description should do
is it should clearly set out when in
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each month you are expected to submit
your application or your invoice.
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So the simplest thing that you can do
is to schedule it out for yourself.
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If you don't get given a schedule and
pin it to your wall for reference.
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Whether you need to organise calendar
events, send yourself meeting
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requests, pop ups on your phone.
Do what you need to do to remind
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yourself of when your valuation dates
are, because missing them is going
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to delay your payment, and why.
Make it easy for the main contractor.
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They will likely find their reasons
to delay paying you of their own,
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so why give them one straight
off the bat by submitting light?
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So on to number two.
Knowing the correct format that
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you need to submit in now,
contractors will likely want an
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application for payment,
but there are some strands of the
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industry that prefer invoicing.
The two things aren't compatible,
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and you will not get away with
submitting an invoice to a
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company that does self billing,
or vice versa.
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So this is vitally important
that you get it right because
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your invoice or your application
will get flat rejected.
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Sometimes even after the contractor
has sent a payment notice because the
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payments clerk will look at it go,
this kind of account doesn't
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receive this kind of document.
No no can do, no pay.
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And it's that simple.
And for those of you that don't know
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the difference is your invoice is
a document that captures the tax
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and it says the word invoice on it.
And it tends to be issued with a
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number of straightforward items
on it.
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An application for payment does
not say invoice on it,
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and it does not mention tax.
And the principle is that you
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are asking the contractor for an
amount of money with a supporting
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calculation of how much that money
should be, and then the contractor
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will go away and assess it,
and then they will bill themselves,
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they will invoice themselves and
send you a copy in line with how
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much they tell you that it's worth.
And that process is to allow the
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checking and verification to allow
those disagreements between how
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much something is worth in the
two parties eyes, and it allows
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money to keep flowing in spite
of something not being agreed.
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And whilst you might think.
That sounds like a bad thing.
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It's actually really good because
if you invoice something and the
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price is incorrect, even for a small
part of what you're invoicing for,
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what you'll find is that the
whole invoice can go and stop.
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So if you've got 200 items on
that invoice and 199 of them are
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correct and one is wrong,
it will get stopped.
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And it's for that reason that
applications for payment are
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preferred, because out of those 200
items, you can get 199 of them wrong,
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and the contractor will still do
his own assessment and pay you
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however much it's worth.
And having some money continuing
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to flow is better than putting
the whole thing on stop on the
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basis of a technicality.
So it's important that you know
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and understand the difference.
It's important that you know which
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you have to submit and it's important
that you get it right because
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you won't get paid if you don't.
Number three.
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Watch out for prerequisites for
payment.
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So these are things that the
contractor insists that you
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maintain as up to date,
or they insist that you complete
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prior to receiving any money.
So a quite an obvious and common
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one is the signing and returning
of a subcontract so that there
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is a complete acknowledged
subcontract agreement in force
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before you start getting paid and
ideally before you start doing any
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work on the construction site.
So this is something that you can
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ask at your pre start meeting,
and it's definitely something that
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will be outlined in the terms and
conditions of your subcontract.
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Some other things that may be
prerequisites to payment are things
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like your insurance details,
which are expected to be renewed and
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then demonstrated to the contractor
so that they know that you're covered
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for the work you're completing.
Some contractors ask for renewed
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rams, so ask for renewed policies
such as your environmental policy,
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your health and safety policy,
and so on.
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Some of these go a little bit further
and request a full accreditation
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is maintained, which includes
all of your policies and usually
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some bullshit questionnaire that
the contractor has thought up.
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But you better pay your fee for
that or you won't get paid.
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How far does that feel?
There is also self billing, which
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some contractors formulate a 1 or 2
page contract to say that you agree
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to self billing applications and
that they agree to bill themselves.
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So these are things that quite
often will be part of the
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contractor's accounting software.
And if a date on one of these
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policies is about to expire,
it will be flagged up on that system
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and it will freeze that payment out.
And they quite often isn't a way
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around it.
So that makes these things
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genuine prerequisites that you
just have to get in place before
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you get your hands on your money.
So you need to understand what
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these are for each contractor
that you're working with.
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Possibly they're all the same,
I don't know, but I would keep
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some details on each contractor
and what their needs are so that
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you can keep that information with
them and keep the money flowing.
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So number four, lack of detail
and lack of communication over
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what you're asking for.
And this is something that is just
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unforgivable because you should
make it as easy as you possibly
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can for the contractor to pay you
as much money as you ask for.
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And that doesn't mean write down
a big number on a piece of paper
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and send it to them.
And it's sadly funny that sometimes
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you receive these kind of invoices or
applications from your supply chain,
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and they genuinely think that
they've done the right thing.
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Here's application number one.
I've spent about four grand this
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month. Pay me five.
So they send you a one line
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invoice for five grand and you go,
what the hell is that?
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So 99.99 times out of 100,
you've done a quote for the job
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that you're working on,
and as an absolute minimum,
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you ought to be able to reference
that quotation and say,
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I've done so much of this part of
it and so much of this part of it.
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And so I think my work so far is
valued at X.
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But in an ideal world,
what you're going to do is get the
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contractor's order out and find the
parts they call the subcontract
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some analysis, and you're going to
put that in an Excel spreadsheet
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and claim down each item in line
with the proportion completed.
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And sometimes even that isn't enough,
because you might be working on a
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project where you've got a vast
quantity of one particular item,
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and it really needs you to split it
down into what you've done in each
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area so that it can be checked really
simply, and help yourself get your
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hands on that all important money.
So if you've got proof, if you've got
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a calculation of what you've done,
send it to your contractor as backup.
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The more convincing you are with
the information you provide,
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the easier it is for the
contractor to agree with you,
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and the more likely it is you're
going to get what you want.
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Number five is a really easy one
knowing who to send your
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application or your invoice to,
and also knowing who to chase if
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there's any issues with it.
The amount of times you're sat
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on a project and you receive an
application from a contractor
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who you worked with in the past,
maybe on your last project, and they
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just send it to you because they
happen to be working on a different
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job somewhere in your business.
Nothing to do with you, but they've
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got you down on their system as
the person who makes payments.
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And sometimes no amount of telling.
I'm not the droid you're looking for,
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we'll get the message across.
And if it's a big enough company,
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sometimes they don't even know
who the right person is to send
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that application to.
But here's another one that you
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will be able to find the answer
to really easily.
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You can either take note of it
when you're at your pre
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commencement meeting,
or you'll find the details laid out
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really simply in your subcontract.
These are details that you have
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to be told so they will be there.
It's just a matter of you opening
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it and finding where they are.
Of course the simplest thing to do is
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to pick the phone up to the person
you got the order from and say,
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where am I sending the bill to mate?
And then the next thing,
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which is sort of related to this, is
knowing who the best person is in the
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business you're working for to chase
when you don't get paid on time.
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And this is an important one,
because a couple of phone calls,
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often to the right person,
and it's often a production line
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rather than the commercial one, that
well-timed couple of phone calls will
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often get the money flowing faster
than it would chasing up the queues.
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And this is one of those things
that you're going to have to get
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to know over a period of time,
because each business will have
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their own ball buster,
who will go to bat to make sure
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production is maintained.
And if you get to know that
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person and get them on your side,
they will prove a really good
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ally for keeping the cash moving.
Number six, correct application
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of retentions and discounts and
corresponding your application
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with the subcontract sum.
So if you've signed up to a
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subcontract and they specify a
percentage discount, a percentage
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retention, and a given contract sum,
you've signed up that you agree
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to those three items,
amongst many, many other things.
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So if you start sending your
applications and they don't
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correspond,
then they are likely to get rejected.
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And this is again something that
it's easy to get right.
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You should be clear on what
you've signed up to.
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So it should be a case of
aligning your subcontract sum on
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your application with that.
That's in your order,
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making sure you're deducting the
right percentages of retention, the
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right percentage of discount so that
you're compliant with your order.
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And of course, you need to know
and understand when retention is
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going to be payable, because there
may be section or completions, or
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there may be one single completion.
And you need to know which one of
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those you're working for or to awards
so that you can apply for your money
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at the right time. No end of times.
Subcontractors will sit in a pre
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start meeting, discuss section or
completion and then completely forget
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to ask for the various sections
of retention and leave it right
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until the end of the job until
they start asking for some back,
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by which time the first section has
probably passed it's defect state for
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all I know. So think about that one.
Think about putting together a
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tracker for retention,
perhaps across all the contracts
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you're working on and specify.
This contract is a single
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release date.
This contract has three sections.
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They're expected to finish then,
then and then they actually
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finish then then and then and a
year after each of those dates,
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the final portion of retention will
be due for each of those sections.
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So not knowing those details is
stopping you from getting your
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hands on your money.
So number seven and number eight are
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going to be related to each other.
And these are going to be about
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substantiating the work that
you've completed.
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And number seven is changes.
And this is a regular source of
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frustration because they quite
often can be disputes about how
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much the change is worth or even
if it's payable at all.
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So if you refer back to a few
episodes that I've previously done on
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changes, we've got episode three on
navigating the challenges of changes
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number 18 about valuing changes,
and number 20, which was five
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steps to change success.
Now, I've actually gone into quite a
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bit of detail on those episodes,
which I don't want to repeat here,
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so I couldn't do it justice.
But the keys to getting your hands
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on variation money or change money
that you feel that you are due are
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around establishing entitlement
and making a clear valuation of
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the work you've completed to
demonstrate how much you should be
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paid when that work is finished.
And of course, if it's a particularly
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large item, you'll be looking to
draw down a proportion of that each
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month as that progress continues.
Number eight is denial of
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payment or reduced payment for
completed main contract work.
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And often this is down to a lack
of detail, but quite plainly,
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particularly if a contractor asks
for a forecasted valuation or a
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valuation that's submitted a
week before the valuation date.
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Then come the end of the month,
your lads on site may have decided
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upon themselves to progress a
different area of work and left
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one that you've applied for,
and all of a sudden it starts
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creating these discrepancies.
So you've over applied for for one
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area and then this other area.
The contract is going to agree
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with what you've done, knowing
that you've clearly done more.
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And there's only one real way to
get this right.
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It's to do your assessment as close
to the end of the month as you can,
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and to do it with enough detail.
Ideally,
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you'll provide some of that detail to
the contractor to help them agree
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with your assessment of the work.
Obviously, the bits that you've
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forecasted, if you do that, are a
little bit more difficult to do,
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but you may follow up with records
for those areas afterwards.
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Or you may advise your supervisors
that this is what you're going to
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apply for, and to make sure that
they press on with those parts.
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Sometimes it's a case of just talking
to the right people and managing them
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towards the outcome that you need.
Because as I say, if a contractor
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sees that you've over applied in
some areas, they will quite happily
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knock those areas back down to what
they see them as. And if you've.
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Under applied for other areas,
expecting something else to have
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been done.
They were often quite happily accept
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that understatement, probably
out of ease than anything else.
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And what that will do is it will
leave you lacking on your payment,
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and you then won't catch up for
another month.
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So how you address that depends on
the scenario that you're working to,
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but perhaps incentivizing your
supervisor to have his eye on
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the cash coming in might help
him to progress the right areas
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and keep your cash flow smooth.
Now on to number nine.
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Unclear contract terms or items.
So here we're talking poorly
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defined scopes of works,
ambiguous drawings, bad detailing.
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Now this will lead to late payment
indirectly because the contractor
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may think that you've not finished
in given areas or that you're not
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compliant with the drawing, and they
may reduce your payment for that.
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The same things can happen during
value engineering and the same things
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00:19:24,440 --> 00:19:28,700
again when changes are introduced.
So you've always got to be clear
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about what you're expecting to
provide and how much that's worth.
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And doing that is what will
prevent disappointment.
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00:19:37,490 --> 00:19:41,600
Finally then number ten,
hopefully this is going to be a
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relatively infrequent issue in
the main contractor suffering
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00:19:46,610 --> 00:19:50,690
financial difficulties.
Now, I did a full episode on
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insolvency, which was number 11,
to try and point out some of the
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telltale signs that you could look
out for to identify a contractor
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that is living on the edge.
Now, I've seen firsthand the
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devastation that gets left behind
when a contractor goes bust
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00:20:08,450 --> 00:20:11,840
partway through a project and
leaves somebody else to come in,
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00:20:11,840 --> 00:20:16,490
step in and pick up the pieces
and try and pick up some of the
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00:20:16,490 --> 00:20:19,820
supply chain at the same time.
And if you start picking up some
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00:20:19,820 --> 00:20:23,270
of the telltale signs of a
contractor's insolvency,
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00:20:23,270 --> 00:20:28,370
then protect yourself, protect your
livelihood and the livelihood of
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00:20:28,370 --> 00:20:32,120
all the guys that work for you.
Some people will have you believe
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00:20:32,120 --> 00:20:36,530
everything is fine, even when it
isn't, and others will be delivering
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00:20:36,530 --> 00:20:40,730
you the company party line,
which is being concocted by somebody
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00:20:40,730 --> 00:20:44,330
else who may be trying to mask
what they're doing whilst they
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00:20:44,330 --> 00:20:48,470
extract money from the business
that should really be paid to you.
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So check out episode 11.
It's called The Impact of
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00:20:51,590 --> 00:20:55,940
Insolvency on the Supply chain.
And watch out and remember,
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if it doesn't feel right,
it probably isn't right.
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00:20:59,810 --> 00:21:04,280
And that there concludes our top
ten issues or things to look out
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00:21:04,280 --> 00:21:08,660
for to prevent late payment.
So thanks for tuning into
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00:21:08,660 --> 00:21:11,390
today's show.
My mission with the podcast is to
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00:21:11,390 --> 00:21:16,220
help the million SME subcontractors
working out there in our industry.
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00:21:16,250 --> 00:21:19,160
If you've taken some value away
from today's episode,
303
00:21:19,160 --> 00:21:22,820
I'd love it if you'd share the show
and pass on that value to somebody
304
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else who'd benefit from hearing it.
And of course, subscribe yourself if
305
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you haven't already. Thanks again.
If you like what you've heard
306
00:21:31,700 --> 00:21:36,200
and you want to learn more,
please do find us at WWE NXT
307
00:21:36,200 --> 00:21:39,740
zone where you can subscribe to
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00:21:39,740 --> 00:21:43,880
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309
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It's less than the price of a
310
00:21:48,260 --> 00:21:51,620
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311
00:21:51,950 --> 00:21:56,690
We're also on all your favorite
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00:21:56,690 --> 00:21:59,870
can give me some feedback,
give me some abuse or whatever
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00:21:59,870 --> 00:22:02,330
you want. Get in touch.
Tell me what you thought.
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00:22:02,570 --> 00:22:05,990
Thanks again.
I've been Jacob Austin and
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00:22:05,990 --> 00:22:06,920
you've been awesome.
