Jacob Austin 00:00:00 Hi all. Jacob Austin here from QS.Zone. And welcome to episode 113 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. And for today's episode, I wanted to shine some light on some things that the government is trying to do to get us paid on time as subcontractors. And it's thanks to the Procurement Act 2023, which is what we'll be starting the episode with. So thanks for joining me. And as ever, if you're new to the show, then do subscribe to stay up to date on all things subcontracting. Now let's dig straight in on the Procurement Act 2023, 23, which has taken effect this year on the 24th of February, 2025, and it replaces the old Public Contract Regulations 2015. And why is this big news? Well, it's now telling us for all suppliers on public sector contracts, getting paid within 30 days will no longer be just a polite request. It's becoming a legal requirement and a guarantee. The new act is mandating 30 day payment terms in all new public contracts.
Jacob Austin 00:01:30 Crucially, this isn't just for the benefit of first tier contractors. It's cascading that requirement through the entire supply chain, covering subcontracts that contribute to the project as well. In other words, every invoice from a subcontractor on a government job should be paid within 30 days by law, even if the contract itself didn't spell that out explicitly, the act implies it automatically Limited exceptions exist, such as concession contracts, certain utilities, contracts, or contracts placed directly by schools. But that does mean that the vast majority of public contracts are covered. Section 68 two of the act sets the prompt payment rule in black and white, and it's dictating any. Some pulling due under a public contract must be paid within 30 days of the invoice being received, or by the invoices own due date. If that's later. And it's section 73 of the act, that flows down that requirement to all subcontracts related to public contract. So that means tier two and tier three suppliers get the same protection, meaning that you have to cascade the same down to any of your sub subcontractors.
Jacob Austin 00:02:48 Importantly, the law voids any contract clause that tries to lengthen payment terms beyond that 30 day limit. And this is a step up from what was in the previous legislation that had that 30 day requirement, but didn't actually do anything about it, or had no teeth to do anything about it. So now the message is clear that 30 days is 30 days full stop. Now, having a strong law is great, but as a supplier, you still need to play your part to make the 30 days work. And so to avoid any reasons for delay. A few simple pointers. Firstly, make sure the document you're sending is valid in accordance with your subcontract. And I mean by that. If your subcontractor is asking you to send invoices, or if it's asking you to send an application for payment, that you send the right thing, it needs to be addressed to the right entity and the right person. You'll often need the contractor's preference on it. Little technicalities, such as those are likely to get your invoice rejected as invalid, so take the time to get them right Because the 30 day clock will start from the day a valid invoice is received by the client.
Jacob Austin 00:04:00 And there's plenty of pitfalls that contractors like to put in your way. As I said, purchase order number, insurance details, the formatting, the breakdown. Because to be clear, the act doesn't apply if the invoice is invalid or if it's disputed. If it is, then the client must notify you without any undue delay. So if you get a quibble, resolve it quickly and resubmit your invoice to maintain that payment time frame your next action and the most obvious action is to submit your invoices as promptly as possible. The 30 day clock starts from the day the invoice is received by the client. So however you are down to invoice under your contract, be it milestones, be it against a schedule of dates. No sooner do you reach that trigger point, then you need to get your invoice in invoicing for it to have maximum effect. The act is also requiring public bodies to accept and process electronic invoices with a specified format, so even the government is getting up to date with attaching an invoice to a portal instead of losing it in the post.
Jacob Austin 00:05:10 Now, from the 1st of October 2025, government departments will be conducting regular spot checks on major contracts to ensure that smaller sub suppliers are being paid within those 30 day terms, and they'll publish results of that and they can take action if the main contractor is failing its payment duties. But just because 30 day terms are agreed or implied doesn't mean your contract is going to help hold them. So what can you do if payment is late? Of course, the very first thing to do should be to contact your contractor. A polite nudge might be all they need to get the money out the door to you. And sometimes a little reminder that you know your rights is enough to prompt action on the contractors behalf. You have always got your statutory right under the Construction Act of suspending performance after seven days of notice. Now, that requires you to submit a notice and clearly state why you're going to suspend performance. But seven days after doing that, you can withdraw from sight. Now, from my experience, nobody in the contractors organization wants to be the one with that delay on their hands.
Jacob Austin 00:06:25 So when one of those notices is received, payment happens pretty promptly thereafter. You've also got the ability to charge statutory interest under the Late Payment of Commercial Debts Act. That entitles you to claim interest at 8% above the Bank of England base rate, albeit that your subcontractor will probably lay out its own mechanism for you to be paid interest. This is something that you have to notify the contractor about and add it to your claim. Even if you choose not to pursue the interest. Mentioning that you're entitled to it reminds the contractor that you know that the law is on your side, and setting out the entitlement to it could be a little bit of a bargaining chip that you're quite happy to get rid of later, perhaps in exchange for full payment of something else. There is also an added tool offered by the Cabinet Office that you can now call in the Public Procurement Review Service, which is a government helpline where suppliers can anonymously report poor procurement practices, which includes late payment on public contracts, so you can submit a complaint to peers and they'll investigate on your behalf.
Jacob Austin 00:07:44 This service has a track record of intervening to get suppliers paid. It's free and your identity can be kept confidential. I'm sure that if I were sat in the chair as the main contractor, getting a call from the Cabinet Office would very quickly get my interest. And it appears to work, because in one recent report, the PRS are recorded as recovering ÂŁ9 million in late payments just by suppliers escalating cases through their service. However you choose to escalate the payment is down to you. But just be clear that the law is in your favour now, so use it to get your hands on your money. The next big development that has come in in 2025 is all about transparency on payments, so that as of this year, suppliers can more easily spot which clients are prompt payers and which clients are chronically late. And crucially, now you can find that information out before you get into contract with them. This is part of the UK's expanded reporting on payment practices and performances regime. It's essentially a public dashboard of large companies payment habits.
Jacob Austin 00:09:01 Going back to 2017, large UK companies and LPs have been required by law to report on their invoice payment practices every six months and post the reports on a government website. This was introduced to shine a light on late payment culture after persistent complaints from SME suppliers. These reports include statistics like the company's average time to pay supplier invoices, and what percentage of payments were not paid within agreed terms. A large business, in this context, is defined as one that meets at least two of the following a ÂŁ54 million annual turnover. A ÂŁ27 million balance sheet, or 250 employees or more. So that is going to cover most big contractors and firms that you'll deal with on public projects. Each of these companies must provide a fresh report twice a year onto the government portal. And as of 2025, the government has extended and strengthened this reporting regime with additional requirements. And that now includes what percentage of payments were paid late because of a dispute with the supplier, for example, the buyer claiming an issue with the goods or an invoice.
Jacob Austin 00:10:20 So that helps you to distinguish between genuine payments that are made late for good reason. And companies that have just got poor payment practices with a bit of an inquisitive eye. You'll probably be able to distinguish as well between companies that have got genuine disputes with invoices and companies that are delaying payments across the board and trying to label them up as disputes, because the amount of times that you end up with a genuine dispute are quite small. Really by number of invoices. The other statistic that you will probably find interesting as a subcontractor is retentions. And companies have now got to publish whether it includes retention clauses in its supplier contracts, which it more than likely does, and then provide information on its retention, payment policies and performance against them. As we know, retention is holding back a small percentage of payment until the end of a project and again, the end of the defects period. And it's a common pain point for subcontractors. Retentions started for a good reason, to help keep some skin in the game so that subcontractors would retain an interest in putting right defects.
Jacob Austin 00:11:28 But a lot of subcontractors have long been suspicious about the real motives behind retentions, whether they just think it's a cash keeping exercise or an element of hoping that the subcontractor forgets about it so that they can add it to the bottom line. So firms now need to come clean on the retention that they hold and how willing they are to pay it. These enhancements were prompted by a 2023 government review and the consultation that followed that tries to improve payment culture, with the idea being that more transparency and more light is shone on areas that contribute to late payment. These have already been through a trial period and then now part of legislation, alongside the reducing of the turnover cap to roughly ÂŁ50 million of turnover to bring more large businesses under the microscope. So now pretty much all of the main players should be covered by this reporting requirement. Why am I telling you this? Well, this is all vital information for you to consider before you start working for a new client, a new contractor. You can find the latest filings.
Jacob Austin 00:12:35 It's free on the Gov.uk website, and you've got some really powerful information that can help you work out whether this is a business that you want to do business with yourself. This needs to be a regular part of your due diligence process. Protect yourself from that organization that regularly pays its suppliers late. Protect your cash flow. Keep that money that you've already earned coming in. Because, let's face it, 30 day payment terms coupled with a 30 day rolling valuation period already make it a significant period of time since you lay your first brick or whatever else until you actually get your money. Because let's say if you do some work on day one of the month, but you can't submit a valuation until day 31 of the month, then you've got 30 days to wait until the cash gets to your bank account. You're 60 days waiting for your first bit of effort to pay off, and only if you get paid on time. So it's now quick and easy to check the payment record of your contractor. You head to the Gov.uk website.
Jacob Austin 00:13:36 You're looking for a portal that says check when large businesses pay their suppliers catchy name. When you search up the company, the report will tell you key stats like average days to pay and the proportion of invoices paid late. I've just searched up one company who I'm not going to name, but their metrics say that they paid 23% of invoices within 30 days, 59% at 31 to 60 days, and 18% at 61 days or more. And it's an average payment period of 48 days. So if I was you, I'd be looking at these reports and focusing in on the average payment time and the distribution of payment speeds. So companies have got to report these metrics which proportion of payments are made within 30, 31 to 60 and beyond 60 days? Obviously, a healthy payment performance looks like a higher percentage within 30 days and few beyond 60. And if the average is, say, between 45 or 60 days, that signals that slow payment is irregularity because they'll be included within that. Any number of small invoices that are quick to turn around.
Jacob Austin 00:14:45 You also get to see the proportion which aren't paid on time. And clearly that's a red flag because it spells out how many of their payable invoices they let slip past their agreed terms. The same company that I referenced a minute ago had 39% paid beyond terms. Just as a for instance, I've just searched for Bovis Construction Europe, which is formerly known as Lendlease, and their stats are completely contrasting to those that are just read out, with 83% paid within 30 days and 0% of invoices paid later than the agreed terms. That's a mega contrast, and I clearly know, hands down, who I'd rather work for, so use this information. Look at the red flags versus the good signs. Compare your potential clients. There's a stark difference between a company that pays 83% of its invoices within 30 days, and its average time to pay is only 20 days to one. That's paying the majority of its invoices within 31 to 60 days, and settles up in an average of 48 days. If you're choosing between these two clients, one of them is likely to keep you waiting and straining your cash flow.
Jacob Austin 00:15:56 You can spot chronic late payers easily by these metrics. You might decide to avoid them. You might decide to at least proceed with caution. Perhaps you can negotiate stricter payment terms with them, or spell out clearly your intention to charge them interest if they fail to pay on time. Obviously, the quicker you can get your hands on your money, the quicker you can put it to good work yourself. Whether that means negotiating discounts for payment early with your supply chain or just having it there accruing interest for your business. This portal also tells you whether the business has signed up to a code of conduct for fair payment, for example, the Fair fare payment code signatories must commit to paying 95% of their invoices within 60 days. 60 days is still a hell of a long time, but just by signing up to it, a client is showing some commitment to paying promptly. And couple that with excellent payment stats. You're hopefully getting some confidence that you're going to have a smoother ride and a better relationship. So thanks to these 2025 reporting additions, you can also see whether large chunks of payments are made late because they are disputed invoices.
Jacob Austin 00:17:08 And you've got to be wary of any company that have got a large proportion of these. It could indicate a habit of disputing invoices just to delay payment or poor quality control and poor procedures. But either way, this is going to affect you. If you've got a 39% chance of being paid late, that's nearly two out of every five payments. Just think about what that will look like in terms of your incoming cash, with all of the pressure that will put on you to continue trading, to continue upholding your contractual obligations to your client, whilst all the while they're failing to meet the most basic of their own paying you. So I'd encourage you to have a look at the portal, check a few dashboards of clients that you've dealt with, and start empowering yourself to make better decisions about who you trade with. And when. You couple that with the 30 day rule that we discussed at the beginning of the episode, you can start having some confidence about who you're working for and when you're going to get your hands on your money.
Jacob Austin 00:18:08 You might only choose to work with certain tier one contractors if they're working with government money, because you can rely on the legislation to protect you. Even contractors with poor payment records have got that obligation to pay. And okay, some of them might struggle with it if they're chronic late payers, but they'll be under pressure to improve or they'll risk contractual sanctions. I don't think I mentioned earlier, but public authorities are now held to these standards as well, and they'll be publishing their own payment compliance notices every six months, showing just how fast they pay their vendors so that public sector and private sector reporting is now aligned. And all of that spells out is that culture is shifting. Late payment is no longer a norm that you need to tolerate to work in the industry, but a bad habit that needs to be exposed and got rid of. So if you're working for any branch of the government or a contractor that is as a hobby, you can now insist on your 30 day payment rights that backed by statute and you know where to escalate them if your demands are ignored.
Jacob Austin 00:19:15 If you want any further information on this, then it's all available for you to browse on the Gov.uk site. I sound like I'm advertising the gov.uk site, but at least this time there's something useful to see beyond the half ÂŁ1 million worth of new logo that surely could have been done in about ten minutes using everybody's favorite paint application. Anyway, I'd probably better not get into that. Hopefully you've taken something useful away from today's episode. My mission with the podcast is to help the million SEO contractors working out there in our industry. If you've taken some value away from today's show, then I'd love it if you'd share the show and pass that value on somebody else who could benefit from hearing it. And of course, subscribe yourself if you haven't already. Thanks again. If you like what you've heard and you want to learn more, then please do find us at www.QS.Zone for more information. And we're also on all your favorite socials again at @QS.Zone. Thanks all! I've been Jacob Austin and you've been awesome!
