An invoice finance expert from a leading brokerage has labelled the payment policy for the High Speed Two (HS2) scheme as unrealistic.
Mark Francis, Head of Commercial Finance at Simply Factoring Brokers, headquartered in Newport, South Wales, argues that the payment policy laid out by HS2 Commercial Director Beth West is not sustainable.
Ms West spoke at a recent HS2 roadshow in Bristol where she announced that all contractors through the supply chain from the main supplier down to tier six must have all invoices paid within seven days.
Referring to the Fair Payment policy, Mr Francis, who has over 33 years experience at Barclays, said: “This is not realistic. To state that all contractors and subcontractors must be paid within seven days of issuing an invoice is a huge ask. Given the well-publicised issues the construction sector has had with cash flow and late payments, to suddenly decree the extremely tight payment terms down on contractors is extremely harsh.
“The logistical stress this will place on businesses, let alone the financial pressure, is enough to put the whole scheme at risk. The failure to understand the processes and timescales shows naivety; this policy should have been developed alongside consultation from the construction sector.”
HS2 is estimated to be worth £55bn across the next 10 years to the construction sector and Mr Francis, who looks after 200 construction sector clients, is questioning who will be responsible in implementing the payment policy: “How will this process be managed? My experience, as well as several conversations I’m having with construction industry figures, is indicating that if this process isn’t handled correctly, it will ultimately fail and cause potential delays to the entire scheme.”
The promises made by Ms West at one of a number of roadshows held around the UK, fall short in explaining that their own Fair Payment Policy states that all invoices will be paid within 30 days; only just meeting existing government guidelines.
“Why does HS2’s Fair Payment Policy state 30 days, which is a far more reasonable target, and not seven, as per Ms West’s claims? In reality, payments will take far longer than seven days, with more expected to take longer than even 30 days. As a best case scenario, I would expect tier three and four contractors to be paid after 35 days. That’s how unsustainable this seven day policy really is. All this is without taking into consideration applications for payment that are part of the sign-off process for payment in construction projects.
“Ms West’s key message was that the scale of the project means that recruiting and training people to cater for this project is HS2’s biggest obstacle. Encouraging businesses to commit where there is no support network in place is reckless and could force tier four, five or six contractors out of business if these issues are not addressed.”
Mr Francis claims that alternative finance needs to be secured to ensure the viability of the project: “We would suggest working with top tier contractors and securing supply chain finance from day one. This would ensure contractors receive payment within 24 hours of raising invoices. Alternatively, contractors can be directed to a suitable invoice finance provider on a case-by-case basis; but this would rely on those contractors being proactive. I would advise that a supply chain finance facility is implemented as soon as possible in order to negate any threat on the delivery of this project.”
Simply Factoring Brokers is a team of experienced, independent brokers that has access to the whole of the market, ensuring all decisions are based purely on which lender offers the best deal for the client. The business employs 10 staff across three sites in Newport, Manchester and Eastbourne.
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