The Secret Surveyor uploaded a tongue in cheek list of reasons to avoid paying subbies (or at least we hope it was whimsical). Naturally we do-gooders at Surveyor ToolKit don’t endorse such behavior, so we’ve turned it into a problem and solution session with one of our Sub-Contractors.
Hopefully the following will be of use if you ever run into any of these all too familiar vindications for delaying remuneration.
‘The cheque is in the post’
This excuse is so ancient that it has in itself become a cliché for stalling payments. Although less popular in these days of BACS transfers, it does still raise its ugly head from time to time, when dealing with ‘lower tier’ Contractors.
The first thing to do is ask for the cheque number. You can normally test the validity of their excuse with this simple question alone. If they are unable to provide a cheque number, then the chances are, this piece of paperwork is in fact mythical. If they do provide a cheque number, this can be used to authenticate their credibility when the cheque (or any replacement) does in fact turn up.
A good round of follow up questions such as who was it posted by, when and what class post is normally enough to let the offending accounts payable representative know that you will be a thorn in their side until payment is received. If they can’t answer tell them you will phone back in half an hour when they have the answers. Chances are they will use this time to write the cheque.
‘I have not received the payment application / invoice’
Another all too familiar defense, albeit if they can get away with using this line on you, it is your fault. When issuing a payment application or an invoice always follow up to ensure it has been received, who has it, and confirm that the due date will be met.
‘I can’t afford to pay you until my customers pay me.’
“Pay when paid” clauses were outlawed by Parliament in 1998, except where the third party employer is insolvent, however this excuse is still prominent with lower tier contractors.
There are many legal avenues to pursue if they think this is an adequate reason to withhold payment, however in the first instance ask for the name and contact details of their client. If they are ‘chancing it’ you will know immediately because they will resist giving you this information.
If you can get the information, get on the phone to the client, verify the story, find out when they are getting paid, and ask if the dispute involves your works. Contractors don’t want stories in the marketplace that they are unable to pay their debts, so this should usually get their wallets open.
Be mindful that the responsibility for paying you still resides with the party you have contracted with. If they truthfully don’t have the money to finance the work then there are greater problems at large. Write them a letter quoting s123 and s214 Insolvency Act 1986 stating that you consider them insolvent and unable to pay their debts. Then tell them you are giving 7 days to pay before you start winding up proceedings.
‘We can’t process the payment because…’
With the advancement of modern technology the excuses have evolved also. Typical reasons for accounts being unable to process the payment include ‘your insurances are out of date on our system’ and ‘your health and safety details have expired’ or the old faithful ‘you haven’t put the correct order number on the invoice’.
In the first instance it is worth stating that, it is in your vested interest to ensure all the relevant documents are in place. The payer has no motivation to confirm these documents are spot-on and will happily let the process time out until you are squawking that they are late. So the onus is on you, as the payee, to be proactive in ensuring everything is present and correct.
That being said, accounting foibles and Sub-Contracts don’t always match. Quite often the hurdles perceived by the accounts department are not a contractual requirement, this flips the problem and makes it their issue. Where this is the case don’t hesitate to promptly issue a ‘7 day notice to suspend works’. This will cover you for any delays, demobilising and remobilising costs if the money isn’t with you within a week.
‘The person who signs the cheques (or pushes the button) is away’
There are many varieties to the ageless alibi. The higher power who signs the cheques is; on holiday, sick, at a funeral, on a site visit, in meetings all day etc. Naturally when this happens we supposed to believe that the entire business has grinded to a halt.
If they are on holiday query how they planned to make other business essential payments such as wages and utility bills. Is there a deputy safekeeping some pre-signed cheques? Why can’t the secondary signatory on the account make an electronic transfer?
Worst case scenario, establish precise timeframes as to when the person will be back and ensure your paperwork is on the top of their pile when they are back.
‘The owner has died’
Ok so this particular excuse doesn’t does not come up that often but it is as old as time itself. When this arises, it can be quite a prickly predicament. The heart of the matter is, you are out of pocket and still need to be paid, so with a touch of diplomacy you need to nevertheless push for your entitlement. Depending on the business structure, there are various routes to take.
If the company you have been Sub-Contracting with is a sole proprietorship then effectively the business has ceased trading. In this situation you have a claim on the estate of the deceased. This is probably the most awkward situation and fortunately it doesn’t happen regularly. A tactful telephone call expressing sympathy, and querying if the business is to be continued before going down this road is advised. It is possible the business may continue operating with a surviving relative “taking over the reins”.
In the case of a partnership suffering a death, then the partners have ‘joint and several liability’ to the debt and need to pay, though a respectful wait on your part may well be appropriate.
If it is a limited liability company (an ‘Ltd,’ ‘PLC,’ or ‘LLP’), then the business should continue to trade as normal.
‘We have ceased trading/are in liquidation/receivership’
In this situation it is paramount to get as much information as swiftly as possible.
The first thing to establish is precisely how the company has ceased trading, i.e. is it a ‘formal insolvency’; liquidation, administration, receivership, bankruptcy, IVA. Once you have established this get the details of the Insolvency Practitioners (IP) who are administrating the business.
Get in contact on the double and register yourself as a claimant. Make sure the IP is formally notified of any reservation of title, intellectual rights or security you have.
Dig out and make sure you dig out and have safe all documented evidence of your contractual relationship and the debts concerned. This will be paramount to retrieve any goods or property from the insolvency firm dealing with their affairs.
Without this, you stand little or no chance or retrieving and goods or property from the insolvency firm dealing with their affairs.
If the business has merely ceased trading, you must satisfy yourself that the business has no assets in order to make a commercial decision whether or not it would be appropriate to pursue the debt through legal channels.
There are many more excuses but all add up to the same thing – if the customer cannot pay to your terms they may be insolvent. So beware. If they are a key customer go and see them; talk together about a plan to recover the position. You may accept staged payments over time provided that new supplies are paid to terms.
If they are insolvent and readily admit they have problems with the bank and the crown then steer clear until the position is resolved.
Be terrier like, never let go until the debt is paid (even in stages) or they have gone into an insolvency mechanism. Then get full details of the liquidation, receivership, administration or company voluntary arrangement.
It should still be possible to get your money.