Balfour Beatty expects that up to 2,000 of its supply chain partners could be interested in signing up to its new supply chain finance arrangements, under which banking partners HSBC and Citi will settle invoices presented by suppliers ahead of the contract’s due date in return for an interest charge.
The new pay-for-early-payment scheme, based around an online portal, has been launched following a six-month trial involving 11 suppliers. Balfour Beatty has stressed that its version of the finance facility does not involve any change in contractual payment terms.
In a statement, it said that its standard payment terms are 31 days, and that it already pays “65% of SMEs within 15 days of the due date”. Balfour Beatty said that it works with a total of 19,000 suppliers, of which 14,000 are SMEs.
But subcontractors considering whether or not to sign up to this and similar schemes offered by Kier and Carillion have been advised that participation could raise their standing in Tier 1 contractors’ eyes.
Balfour Beatty has stressed that its scheme is voluntary, but Ian Corfield, partner at Grant Thornton, believes that participation could, in future, become a plus factor in prequalification procedures.
Corfield said: “I have no direct evidence of this happening, in construction or other industries, but you can imagine it being a prerequisite in the future. If I was a main contractor, I would certainly consider that. If you are a subcontractor and you’re consistently supplying good quality paperwork and documentation, it becomes a good, easy working relationship. One day you could see it being part of the pre-qualification process.”
Corfield added that the arrangement would also save costs in Balfour Beatty’s administration department. “Instead of paying out hundreds of cheques a week, they will be making a single payment [to the bank] once a month. Construction is all about cash, and this is a way for the larger operations to manage their cash better. It’s clearly a popular trend.”
“For a medium-sized business like ourselves, this facility is providing us with valuable and much-needed access to funds which has given us the ability to release payments to our own supply chain further down the line quicker than anticipated.”
Jim Galvin, One Four Four Ductwork
Balfour Beatty’s confirmation that it is to offer supply chain finance means that it joins Carillion and Kier in offering the new payment option.
Balfour Beatty’s scheme, which will be rolled out on a phased basis across the UK, is designed to offer support to SMEs in the supply chain and help provide access to low cost funding.
Supply chain partners will be able to access funds as soon as invoices are approved, within their existing payment terms.
An online portal, similar to internet banking, gives the supply chain visibility of payment status and the ability to manage cash flow better.
Following feedback from the 11 subcontractors in the pilot, which started in March, the functionality of the portal has been improved to meet the supply chain’s needs.
Jim Galvin, director of One Four Four Ductwork, based in Liverpool, who took part in the pilot scheme, commented: “For a medium-sized business like ourselves, this facility is providing us with valuable and much-needed access to funds which has given us the ability to release payments to our own supply chain further down the line quicker than anticipated.
“The system itself is easy to use and monitor and is extremely attractive to businesses like ours. I would not hesitate in recommending the system to other members of Balfour Beatty’s supply chain.”
Balfour Beatty says it has made a significant investment in the IT system to facilitate the scheme.
Martin Chown, procurement director at Balfour Beatty Construction Services UK, said: “Balfour Beatty reinvests two thirds of its revenue in the supply chain and as such our own performance is underpinned by theirs.
“It is essential that we develop lasting, collaborative relationships with our supply chain and it is also the right thing to do.
“The scheme is voluntary and easy to sign up to. It is just one of the initiatives that we are committed to delivering to better support our partners, specifically the small- and medium-sized businesses we work with, ensuring they continue to prosper and grow alongside us.”
Nicholas Pollard, chief executive officer at Balfour Beatty Construction Services UK, said: “It is really important to Balfour Beatty that we take the supply chain with us and build even stronger relationships as we move forward with creative approaches to our customers’ opportunities.”
