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The UK construction industry is entering a new era of financial regulation. The government’s recently confirmed “Backing Your Business” plan aims to inject £11 billion back into the economy by ending the “scourge of late payments.”
For construction firms, this isn’t just a policy update—it’s a fundamental shift in how commercial and finance teams must operate.
The Big Shift: Banning Retentions
The most significant change for the sector is the proposed ban on withholding retention payments. While retentions have traditionally been used to ensure performance, the government has noted they are too often abused to balance books, causing 14,000 small businesses to fail annually.
What to expect: A 12 to 24-month transition period to allow firms to move toward alternative assurance, such as surety bonds or insurance.
The Risk: Without retentions to “buffer” cash flow, firms must have absolute visibility over their project margins and payment cycles.
Reclaiming the “86-Hour” Loss
Current data reveals a staggering inefficiency: business owners waste an average of 86 hours per year simply chasing invoices. In an industry where margins are already thin, these 133 million total staff hours represent a massive drain on productivity.
The new legislation introduces “teeth” to fix this, including:
60-Day Payment Cap: A strict maximum term for large firms paying smaller suppliers.
Small Business Commissioner (SBC) Powers: The ability to investigate and issue fines worth tens of millions for persistent late payment.
Mandatory Interest: A statutory right to 8% interest above the Bank of England base rate, which can no longer be “contracted out.”
Future-Proofing with RedSky: From “Slogging Away” to Automated Compliance
As the legal framework tightens, manual processes—printing emails, matching GRNs by hand, and “lost” invoices—become a liability. RedSky’s construction-specific ERP is built to turn these regulatory challenges into operational advantages.
1. Digitise the “Paper Trail” Our Invoice Automation solution uses cutting-edge OCR (Data Capture) technology to read and extract data from supplier invoices automatically. This eliminates human error and ensures invoices are registered the moment they arrive—giving you a head start on the 60-day clock.
2. Seamless Subcontractor Management We provide a fully integrated assessment and certification process via our integrated solution. Subcontractors submit applications digitally, providing your Commercial Team with an immediate view of total liability. No more “smash and grab” claims or missed payment notice deadlines.
3. A Single Source of Truth With a cloud-based ERP, your Finance, Commercial, and Site teams work from the same data. You gain the “eyes light up” transparency that auditors and the Small Business Commissioner will now expect.
The Transition Starts Now
The 12 to 24-month window for contractual adjustment is your opportunity to digitise. Don’t let late payment penalties or the end of retentions catch your back office off guard.
Is your business ready for the strongest payment legal framework in the G7?
