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Government Action to Support Small Businesses and Enhance Retention Practices in the UK Construction Industry

November 2, 2023

The UK construction industry is a cornerstone of the nation’s economy, generating jobs and infrastructure that drive growth. However, it has long grappled with issues related to retentions and late payments, causing significant challenges for smaller businesses. In recent developments, the UK government has taken decisive action to back small businesses and tackle late payments in the construction sector, introducing stricter regulations and greater transparency measures. 

 

Understanding Retentions in the Construction Industry 

 Retentions, in the context of the construction industry, refer to a practice where clients withhold a portion of a contractor’s payment (usually 5%) until the project is completed to their satisfaction (usually held for 12 months, known as the ‘defects liability period’). This is done to ensure that any defects or issues that arise during the construction process can be addressed before full payment is made. While retentions can serve a legitimate purpose, they can be misused and may negatively impact contractors, particularly smaller ones. 

 

New Government Press Release 

 On October 3, 2023, the UK government released a significant announcement addressing the issues surrounding retentions and late payments in the construction industry. The press release, titled “Government Takes Action to Back Small Businesses and Tackle Late Payments”1, outlines the following key initiatives: 

 

  1. Forced Publication of Retentions Data: Contractors will now be required to publish data on retentions, bringing greater transparency to the process. This move will empower contractors to monitor their retention more effectively and help identify any unfair practices.
  2. Stricter Payment Reporting Laws: Retention records will be incorporated into stricter payment reporting laws. This will necessitate more comprehensive and timely reporting, reducing the risk of late payments.
  3. New Metrics for Improved Transparency: A new metric will be introduced, allowing businesses to assess the total invoice value, including late payments and a metric for disputed invoices.

 

The Benefits of Construction-Specific Accounting Software 

 In light of these regulatory changes, it’s crucial for construction businesses to have the right tools in place to monitor the status of retentions and ensure payment dates are not missed. Specialised construction accounting software, such as Construct Cloud and EVision Cloud ERP integrated into Microsoft Dynamics 365 Business Central, can play a pivotal role in achieving this. 

 

  1. Retention Tracking: These software solutions offer dedicated modules for tracking retention. Contractors can easily access and update retention data, ensuring compliance with the new regulations.

 

  1. Cash Flow Management: Construction-specific accounting software allows for precise cash flow tracking. It enables businesses to forecast cash flow, identify potential issues with late payments, and take proactive measures to maintain financial stability.

 

  1. Payment Date Alerts: These tools can be set up to show dashboards and run retention reports which provide outstanding values, and payment due dates, preventing missed payments or late penalties.

 

  1. Document Management: Many of these solutions offer document management features, making it easy to store and retrieve important retention-related documents, contracts, and correspondence.

 

The UK government’s commitment to supporting small businesses and addressing the challenges related to retentions and late payments in the construction industry is a positive step forward. By implementing stricter regulations and increasing transparency, the government aims to create a fairer playing field for all stakeholders. 

In this evolving landscape, construction-specific accounting software like Construct Cloud and EVision Cloud for Microsoft Dynamics 365 Business Central can be invaluable resources for contractors. These tools empower businesses to manage retentions effectively, improve cash flow tracking, and ensure that payment dates are met, ultimately contributing to a more robust and resilient construction sector in the UK. 

 

Your Next Steps

Keep an eye out for the latest measures which will be coming from the government’s upcoming ‘Prompt Payment and Cash Flow Review’. 

To learn more about how Construct Cloud can benefit you, click here

To learn more about how EVision Cloud for Microsoft Dynamics 365 Business Central can benefit you, click here.

Sources:  

  1. UK Gov Press Release (UK Gov, 2023) 
  2. New government retention regime in summary (Construction Enquirer, 2023 
  3. Contractors to be forced to publish retentions data (Construction News, 2023) 

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