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Impact of late payments getting worse for contractors


Over 90% of service companies reported that they were affected by late payments according to a survey of contractors and service companies conducted by the Energy Chamber. In addition, 93% of respondents also said that the impact on their companies was significant and over half of the surveyed companies said that over 50% of their accounts receivables were 60 days overdue.

One year ago, the Energy Chamber conducted a similar survey among its membership and it appears that the situation is in fact worsening. In general, companies said that the reasons for late payments included delays in receiving paperwork (such as a purchase order) (41%), invoice-related queries (50%), delays in receiving sign off on completed jobs (60%), delays due to staff turnover in customer companies (32%) and lastly delays in receiving references from customers (9%).

However, when asked about the types of organizations who were mainly making late payments, contractors indicated that issues were faced with state companies (56%t) and locally owned private companies (59%). Thirty-seven per cent identified multinational organisations and 15% identified EPC contractors as companies making late payments.

Seventy-nine per cent of the surveyed contractors said that they had to make provisions in their accounts to write off doubtful debts. And 70% of contractors also said that the problems with late payments have gotten worse over time. Twenty-two per cent said that the situation remained the same as there was no change and only 7% said that it had improved.

According to survey results 89% or service companies said that a significant portion of management time is spent by dealing with late payment issues and 7% said that most of their time is spent on dealing with the issue .

Late payments continue to place contractors and their customers in difficult situations. When asked how the issue had impacted on their relationship with their clients, one company said they run the risk of losing the client to another company that could provide better credit terms. One in fact said that they had to withhold services and threaten legal action. But other respondents indicated that they were now very cautious of accepting contracts and engaging with certain clients, especially state companies.

To reduce the incidence of late payments, companies said that they follow up consistently with phone calls and emails for outstanding balances and others have asked their customers for larger mobilisation fees.

It is clear that the issue of late payments continues to be a major concern for many service companies and contractors in the energy sector. This becomes even more burdensome in a challenging economic environment. It places contractors in a difficult position since they want to ensure that they continue getting work but also need to balance their cash flows.