Cashflow - essential for the 'new normal'

Steve Hadley, chair of the UK’s Federation of Piling Specialists discusses how the issue of late payment is being brought into sharp focus by the impact of the COVID-19 lockdown on the construction industry.
Cashflow - essential for the 'new normal' Cashflow - essential for the 'new normal' Cashflow - essential for the 'new normal' Cashflow - essential for the 'new normal' Cashflow - essential for the 'new normal'

Steve Hadley, chair of the FPS, discusses the implications of late payment during and post the COVID-19 lockdown

As the whole of UK plc comes to terms with the so-called ‘new normal', by and large the Federation of Piling Specialists (FPS) welcomes the government initiatives that are designed to help the construction sector through these difficult times

Specifically, this assistance includes a Coronavirus Job Retention Scheme, the ability to defer VAT and income tax payments, a Coronavirus Business Interruption Loan Scheme, which offers loans of up to £5 million (US$6.2 million) for SMEs through the British Business Bank and a new lending facility from the Bank of England to help support liquidity among larger firms.

Of course, as welcome as these schemes are, there has always been a cashflow issue within the construction sector necessitating their existence. Pete only pays Sarah when Pete gets paid and, therefore, Sarah only pays John when she gets paid and so on.

With the root cause obviously starting at the top it is hoped these schemes will not only help during these difficult times but also start a debate about the need to get cash flowing throughout the sector.

Each link in the chain is vital to the sector's success overall, a break at any point puts a strain on continuation and growth when we do emerge from the present crisis.

As is always the case, the SME part of the construction sector suffers most from any delay in cash flow, yet it is often the smaller specialist contractors in the industry, such as piling and ground improvement, which are essential to facilitate the biggest of projects.

One would argue that the further from the source a sector is on the supply chain the greater the need for cash to flow. Obviously, no single part of the construction sector is any more important than another, but conversely, that also means every sector holds equal importance and has an entitlement to get paid in a reasonable timescale for the work it has completed. Everyone expects our salaries to be paid regularly and on time, so why should that be any different for a business, which after all has to pay salaries regularly and on time? The consequences of poor cash flow in business are no different from those in your personal life they just result in many more people suffering the effects.

It should also be remembered that good cashflow allows many benefits to flow back in the opposite direction. Safety improvements, training, innovation, apprenticeships and improving standards to name but a few are all made possible through good cashflow where monies are not diverted to service debt and ultimately make for a better project. Projects such as the FPS's current initiatives in harm reduction (exclusion zones, minimising manual handling and reinforcement), occupational health (research into fatigue), learning and development, commercial good practice and technical standards are enabled by members being able to resource the work on them if the cash flow situation improves then outcomes are reached sooner and new initiatives started.

In fact, many other sectors have benefited from disruption, Apple with music, Amazon with retail, Airbnb with accommodation; maybe the current situation presents a great opportunity for us all in the longer term?

When we do emerge from this present challenge, much time will be devoted to introspection of our industry and how we can build in the resilience to ride storms such as Coronavirus in the future. Much was learnt from the financial crisis of 2008, and I know many businesses are now in better shape for it, but now perhaps it is time we consider how we can make the entire construction sector more resilient, and restructuring cashflow has to top that list.

The FPS is not seeking to blame anyone for looking to their own bank balance before considering that of their supply chain - survival is often instinctive - but there must be moves to get cash flowing from the top or there is a risk of killing off the supply chain and that will ultimately become a self-fulfilling prophecy for the entire sector. The construction sector is currently being presented with the opportunity to be better prepared for any future challenges as one thing is certain - these challenges will continue.

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