CONSTRUCTION INDUSTRY

Late Payment in Construction Industry

Late Payment in Construction Industry

Introduction

In the sector of construction, the problem of late payment is common and it is faced almost by every construction contract. This problem is needed to be distinguished explicitly because this issue occurs over and over again in the subsequent projects. Payments are considered to be main issue as monies and it is required to pay for labor, materials, plant, preliminaries, subcontractors' account rendered and common overheads applied during the work's progress (Schutte, 2013, p.n.d.). The aggregated cash flow turns negative if the money's flow in the organization is delayed. In this case, the contractor will need to overcome this cash deficit. This is achieved through instant payment or funding for the contract that helps in overcoming the deficit in cash. Thus, the late payments in the construction sector or in construction contracts affect the quality, time and cost of the project.

Construction projects of good quality require payments in timely manner in order that the progress of the project will not be affected by the payment. In the construction industry of United Kingdom, payment delays are common and this issue is faced by almost every project of the construction industry. The issue of payment delays in construction industry in United Kingdom is common (PRISM, 2013, p.21). It is observed that there are few main individuals who accept the late payments and they think that it is acceptable to receive late payments. This type of perspective make the problem late payments worsen and it becomes hard to deal with this ever increasing issue which must be resolved. Thus, the issue of delayed payments in the sector of construction can be disastrous and adversarial. The cash flow of the organization is badly and severely affected by delayed payments and this issue might ultimately lead to bankruptcy of the company. Payment's timeliness is essential and plays a vital in role in preventing or eliminating the risk and danger of the issue of delayed payments within the construction industry. With the passage of time, the issue of late payments increases and gets worsen once it is started and consequently it may transfer the financial burdens form one contributor to another contributor and eventually it produces the problem of cash flow (Proverbs et al., n.d., Pp.73-74).

The demands of the clients have been increasing with the passage of time and they are less prepared to allow the risks in their projects. Many clients experience the practice of shifting certain risks to other companies which additionally down the chain by minimizing their costs by the delayed payments. This strategy transfers the financial burden form the contributors to the contractors who might not have huge amounts of credit and large capital assets available in order to cover their delays in payments (Proverbs et al., n.d., Pp.73-74). According to the research, it has been observed that the strategic cash flow's adage is to gather the payment early and pay late. This strategy has produced the problem in which the ...