"We're Not A Bank": Why Construction Suppliers Are Shortening Payment Terms
"More customers are struggling to pay us on time than ever before, often because they're dealing with late payments themselves. At the end of the day, we're a builders' merchant, not a bank." That's how Keith Fryer, Director of Business Development at FORT Builders Merchant, described the pressure now facing suppliers across the construction supply chain.
In short: new research from Bibby Financial Services found that 4 in 10 UK SMEs have shortened their own customer payment terms to protect cash flow, as late payment and bad debt continue to rise. For construction suppliers and merchants sitting in the middle of long payment chains, it's a defensive response to a problem that shortening terms alone can't fully solve.
A Supply Chain Squeezed From Both Ends
The latest BFS SME Confidence Tracker, surveying over 1,000 UK SME owners and decision-makers, found that 60% of businesses believe their customers are taking longer to pay than they did a year ago. The average SME is currently owed £72,000 in outstanding invoices, rising to £143,000 for mid-sized businesses - figures that will feel familiar to merchants and suppliers used to carrying large, unpaid balances while waiting on contractors further down the chain.
The pressure isn't limited to slow payment either. Average bad debt among SMEs has climbed above £30,000, and 58% of businesses reported that at least one of their own suppliers had ceased trading or become insolvent in the past six months, with 55% seeing the same happen among their customers. In construction specifically, this reflects exactly the pattern we've covered before: when a business further up a long payment chain runs into trouble, the businesses below it absorb the impact first.
Why Suppliers Are Tightening Their Own Terms
Faced with this, 4 in 10 SMEs have responded by shortening the payment terms they offer their own customers. For a merchant or supplier extending credit to contractors and subcontractors, tightening terms is one of the few direct levers available to limit exposure when a customer's own payment behaviour is outside their control.
As Keith Fryer put it, chasing late payments is "a time drain" on resources that should be going toward running the business, not managing cash flow around someone else's late invoices.
Where Shortening Terms Falls Short
The issue is that shortening payment terms changes what's being asked for, not whether a customer can or will pay on time. A contractor who typically pays 90 days late under 60-day terms doesn't necessarily become a reliable 30-day payer just because the terms changed — if anything, the same invoice simply becomes overdue sooner, without the underlying cause being addressed.
This matters particularly in construction, where payment delays often cascade from genuine cash flow pressure higher up the chain, not simply poor administration. Tightening terms protects against new risk going forward, but it does nothing for invoices or retentions that are already outstanding.
The Bigger Picture: Reform Still In Progress
This research lands as the government's own reform agenda continues through Parliament. The Small Business Protections Bill (also referred to as the Commercial Payments Bill) proposes a 60-day payment cap, mandatory statutory interest with no opt-out, and a ban on withholding retention payments specifically in construction contracts - measures we've covered in detail elsewhere on this blog.
Nearly a third of SMEs (32%) want robust late payment legislation in place by the end of the current Parliament, a clear signal that voluntary adjustments like shortening terms aren't seen as a full fix by the businesses living with the problem day to day.
What Construction Suppliers Can Do Right Now
Shortening payment terms is a reasonable protective step, but it works best alongside action on what's already overdue, not as a substitute for it:
Review your current ledger for genuinely at-risk accounts, not just the total outstanding, since a contractor who's recently started paying slower or disputing invoices more often is a stronger signal than the raw balance alone. Where a customer or contractor has gone quiet, don't assume the next invoice will resolve itself - treat a change in payment pattern as information, not a one-off. And for invoices or retentions that have been outstanding for a meaningful period already, shortening future terms won't bring that money back; a structured recovery process will.
If your business is feeling this exact squeeze, specialist construction debt recovery can help recover what's already overdue, while you focus on protecting what's ahead.
FAQs
Why are construction suppliers and merchants shortening payment terms? To limit their own cash flow exposure, as contractors and subcontractors take longer to pay and bad debt across the sector continues to rise.
Does shortening payment terms stop contractors paying late? Not on its own. A contractor who typically pays late under longer terms often continues the same pattern under shorter terms - the invoice simply becomes overdue sooner, rather than being paid faster.
How much are construction suppliers typically owed in outstanding invoices? UK SMEs are owed an average of £72,000 in outstanding invoices, rising to £143,000 for mid-sized businesses, according to the latest Bibby Financial Services research.
Will the Small Business Protections Bill help with construction payment delays? It proposes a 60-day payment cap, mandatory interest, and a ban on withholding construction retentions, but it's still progressing through Parliament and isn't law yet.
What should I do about invoices that are already overdue? Shortening future payment terms won't recover money already owed. Reviewing at-risk accounts early and using specialist recovery support for invoices or retentions that have been outstanding for a meaningful period gives you a better chance of actually getting paid.
