Carillion’s 120-day payment terms came under fire with MPs condemning the move as ‘appalling’ and an ‘abuse of its position’.

The construction giant extended its payment terms to 120 days and is implementing ‘reverse factoring’, a financial mechanism that allows suppliers to be paid early if they pay a
charge to the bank.

In this month’s Specfinish Professor Rudi Klein warns specialist contractors about to check payment terms by Carillion: “This is now likely to apply to all subcontractors irrespective of
their involvement in the supply chain finance initiative (SCFI) scheme being promoted by Carillion although Carillion publicly maintains that suppliers can still opt to remain on 65-day payments. Firms receiving tender inquiries from Carillion should carefully scrutinise their payment terms.”

The 120 days commences from the date of application. Carillion describes the SCFI as its early payment facility which ‘enables our suppliers to receive payments in advance of their current
contractual terms’. Carillion will, however, take up to 30 days (from date of receipt) to approve a payment application or invoice. Furthermore Carillion maintains its right to issue a
pay less notice and, therefore, recover the amount stated in that notice.’

Carillion says that the scheme is optional and that it is offering to reimburse suppliers for the bank charges incurred to ensure they are no worse off. The company says the system follows with the government’s supply chain finance scheme that is aimed at easing cash flow through the supply chain.

Steve Halcrow, FPDC’s executive director, said: “Late payment by large companies to SME subcontractors is a complete outrage and a national scandal. By not paying on time, large
firms are forcing small companies to bankroll them. We’d suggest that our members carefully review contract terms before committing to any new work.”

Eight months ago the supply chain finance initiative was launched by the Prime Minister. At the time there were concerns that the move could entrench a culture of late payment among Britain’s largest companies, according to shadow business secretary Chuka Umunna.