The move has sparked a barrage of complaints online as outraged trade contractors have taken to Twitter to voice their opposition to the plan.
The new policy also includes an “Early Payment Facility” which allows suppliers to be paid ahead of schedule if they pay a fee to Carillion’s bankers.
Carillion has now posted an online statement clarifying the position and confirming that its standard payment terms where extended to 120 days late last year.
The firm said: “There has been some negative coverage recently about our payment terms. We would like to take this opportunity to set the record straight and provide further information about our payment terms and Early Payment Facility (EPF).
“We have a very wide range of payment terms which are negotiated with all of our suppliers on an individual basis.
“These range from our standard terms, which we extended last year to 120 days, to payments in advance for some of our smaller suppliers.
“We are also working on a range of initiatives that will help to improve access to credit and cash flow management for our supply chain.
“One of these initiatives is our Early Payment Facility (EPF) which we relaunched last year in support of the Government’s Supply Chain Initiative which aims to improve cash flow in the supply chain.
“A large number of key suppliers have already signed up to the scheme and the feedback has been very positive. Many more suppliers are in the process of joining as they recognise the benefits.”
Carillion also published a guide to the new Early Payment Facility:
How does the Early Payment Facility work?
1. The EPF programme enables many suppliers to receive payments against approved invoices in advance of their current contractual terms and this facility is being rolled out progressively to our suppliers. Please refer to this leaflet for further details about the EPF.
2. Carillion is not charging for this facility and payments will continue to be made to suppliers in line with existing terms at no cost. The only fees associated with this facility are those incurred when the supplier chooses to access funds earlier than the existing payment terms.
3. Independently of this, Carillion is increasing standard payment terms to 120 days with a Supplier Incentive Scheme in place to ensure the supplier’s financial position is not detrimentally affected by the change in terms versus current position. But, as already explained, payments will continue to made against existing terms at no cost, including those subject to Public Sector Fair Payment Charters.
4. Irrespective of current payment terms, all preferred suppliers will have the opportunity to access payment early through the EPF at very competitive bank rates; far lower than most small and medium sized businesses (SME’s) would be able to access via traditional routes.
5. Suppliers who work on contracts subject to Public Sector Fair Payment Charters will be able to receive payment in line with those terms at no cost to themselves.
6. In essence, our EPF gives our suppliers access to working capital by enabling them to borrow against Carillion’s balance sheet, either at no cost to themselves, or at fees that are more competitive in comparison with typical bank borrowing.
This initiative is designed to help businesses, particularly small and medium sized enterprises (SME’s) to improve their cash flow and reduce their borrowing requirements at a time when many SMEs are unable to borrow from banks.
Frequently Asked Questions
Q. Is it expected that all Carillion suppliers extend their terms?
A. Carillion has a very wide range of payment terms ranging from payments in advance up to our standard terms. We negotiate payment terms with all our suppliers on an individual basis and we are working on a range of initiatives, such as the EPF, which will help to improve access to credit and cash flow management for our supply chain.
Q. Why is Carillion requesting that suppliers extend payment terms whilst also providing the EPF which enables them to get paid ‘early’? Why not just stick to original terms and pay in line with these?
A. The extension of our standard payment terms provides Carillion with greater payment flexibility. But, as already explained, all of our suppliers have the opportunity to use our EPF, regardless of the terms that they are on, to receive payments either earlier than they do now, or no later, at no cost to themselves.