Progress Payment Finance is Available, Learn How to Qualify Here
Progress payment financing can be very challenging. Most financiers do offer this service. It is usually only under particular conditions.
In this video you will learn;
1/ Progress claim finance options
2/ Reasoning behind why factors tend to steer clear of progress claim factoring
3/ What happens with progress claims when a client goes out of business
4/ What sort of areas financiers avoid
5/ The idea behind the Securities Payment Act and how to enforce a claim
Plus much more
Watch the video and/or read the transcript below
Call the office on 1300 652 158 for an appointment with a Product Specialist.
Daniel: Darren Vardy, thank you very much for joining us today. Tell our audience what makes you so qualified to discuss the nature of progress payments.
Darren: Well, aside from being an official liquidator, I’m actually an accredited adjudicator under the Security of Payments Act legislation in most states. Back in about 2004, I came across a particular insolvency matter where the company had in fact commenced the use of the process to recover their money. Having done a little bit more research, I realised that it was a really good tool to actually assist subcontractors with recovering money. So I then set about becoming an accredited adjudicator. Therefore, what that means is that I’m actually on a panel of adjudicators who actually hand down determinations on dispute issues.
Daniel: Wow, so you’re pretty well placed to comment on that.
Darren: Yeah.
Daniel: So what’s the idea behind the Security of Payments Act?
Darren: The whole purpose of the Security of Payments Act regime is to provide a mechanism for subcontractors to get paid. What generally happens is if a contractor has done the work, it’s entitled to use the process then to recover payment. It’s an alternative to a court process and generally more efficient.
Daniel: So it stands outside the court process?
Darren: It does stand outside the court process. Yes.
Daniel: So we’re a factor. Why do you think that factors are so hesitant to finance progress claims?
Darren: Really it’s all about understanding the process and what the legislation does provide. The legislation provides a statutory entitlement to get paid. It’s understanding how that statutory debt, in fact, arises and how then it can be used to, in fact, lend money. So generally factors are hesitant as a result of the contractual process and the complex contracts that subcontractors enter into. In that regard, whilst the contractual obligations remain the same and there are claims or there is a possibility of being claims for want of delay claims and damages under the contract, as long as the contract management procedures are appropriately and in place, it’s actually an efficient way of managing the cash flow of a business.
Daniel: If I was to finance progress claims and my client goes out of business, does the debtor still have to pay the claim that was financed? That’s really what we’re interested in.
Darren: Yes, it does. As I indicated earlier, there is a statutory debt which is created by virtue of the process. So a claimant or subcontractor will issue a payment claim, and if a payment schedule is provided, or even if no payment schedule is provided, depending on the result, a statutory debt arises by virtue of the scheduled amount provided. Or, if nothing provided, it’s deemed that the amount claimed is the statutory debt amount.
Daniel: And if I’ve got a business that issues invoices that are progress claims or progress claim related, in your experience what are some of the ways to go about getting financed for my business?
Darren: Well, traditionally, subcontractors have had to actually rely on the old mortgage style finance – using their house, using their bricks and mortar to effectively borrow against and put money up. There are very few finance companies that are actually factoring this type of business. So it’s a niche market, and as long as you understand the type of work that’s being done and, more importantly, understand the contractual nature, it can be managed and it is a good start of business.
Daniel: So you’re saying that there are two things to look out for. There’s the legislation you’ve got to worry about and also the contract as well.
Darren: Correct.
Daniel: If there both two competing interests, which one takes precedent?
Darren: The contract is always an overriding precedent. However, what the legislation does is it provides a regime where the contract may actually be solid or where the contract is actually, for want of a better term, unreasonable. So when looking at this type of factoring, what needs to be considered is the actual contract and the progress of the contract. How is the contract performing? Is the client paying on time? Do they have a good history? Are there any issues such as back charges or variations or delay claims? Is the contract on time? Things like that need to be considered, and the systems and the processes within the organisation that you’re actually funding. Do they have the appropriate contract management personnel and processes in place to manage these sorts of contracts?
Daniel: Yeah, so getting the right paperwork, as well.
Darren: It’s all about the paperwork. Yeah.
Daniel: What kind of work should I be avoiding at the moment, in the construction space?
Darren: I don’t know that it’s a type of work that you should be avoiding. I believe it’s the type of client you should be avoiding. Those clients that aren’t up to date with their paperwork, that haven’t got good contract administration processes in place, are always the guys that will be taken advantage of by the head contractors up the line. Where most subcontractors fail is where they’re asked to do variation work or work additional to scope and they don’t have sign-off.
Daniel: They don’t have documentation.
Darren: They don’t have documentation to substantiate their claim. And there is an old saying, “If it’s not in writing, it never happened.” Therefore, if a variation hasn’t been signed off, how can you support the fact that (a) it is a variation and (b) support the fact that you ought to get paid for it?
Daniel: Just going back to the Security of Payments Act, how easy is it for me to enforce my rights under it?
Darren: It’s a simple process. As long as the payment claim has been issued and a payment schedule has been received, or even if a payment schedule hasn’t been received, there is a process then to pursue the debt owing or the amount owing by virtue of the adjudication process.
Daniel: How do I avoid having issues with getting paid on my progress claims?
Darren: The way to avoid having issues is to fund the payment schedules, because the payment schedule is an acknowledgement by the head contractor up the line as to what it is owing at that point in time.
Daniel: So it’s like a proof of debt.
Darren: It’s like an approved amount.
Daniel: Okay.
Darren: Correct.
Daniel: Yeah. As a contractor, what are the vital three things I should be concentrating on right now?
Darren: The three things. First and foremost, ensure that procedures are in place whereby progress claims are issued, where they actually constitute a payment claim. We need to make sure that when you put your payment claim in, there is the particular paragraph on the bottom of that payment claim to ensure it complies with the legislation.
Daniel: Is that the only paragraph that needs to be on there?
Darren: Yes. It does differ for each particular state, but yes, it is the only paragraph that needs to be on there. You also need to provide a sufficient amount of information in the payment claim so as the respondent or head contractor is able to determine what is being claimed for. What generally happens is that, with progress claims, they’re usually claimed on a month-to-month basis. One thing we always tell our clients to do is make sure that when they are claiming for a month, they actually claim the amount outstanding as of that point in time, not for that particular month, because the way the contract cycle works is that, at the end of the month, you more than likely haven’t been paid for the previous month either because of most contractual terms being submit an invoice by the 25th of the month, pay at the end of the following month. So at any one time, the client is effectively out two months’ worth of work. So we always say make sure that that claim is not just for the month, but for all monies outstanding at that point in time.
Daniel: Oh, right.
Darren: Okay.
Daniel: All unpaid monies.
Darren: All unpaid monies.
Daniel: Yeah, I get it.
Darren: So if you do need to go and enforce, you’re enforcing for all unpaid monies and not simply one particular month at a time.
Daniel: That’s a good tip.
Darren: Other things. Another thing to be conscious of is contract administration. We touched on variations. Make sure they get signed off on. Make sure the paperwork is in order. From time to time the work schedule will be delayed. Make sure you’ve documented what those delays are, who’s responsible for those delays. We have a lot of wet weather that we’ve had of late. That has delayed a number of projects. You need to make sure that the works program is extended to cater for those such delays.
Daniel: Right.
Darren: And the third thing, obviously, is cash flow. Manage your cash flow. Make sure that you’re being paid in accordance with the terms of the contract and that will make life a lot easier when it comes to your financing and managing your factoring finance thereon.
Daniel: So Darren, is there anything else that I haven’t asked you that I should ask you?
Darren: I think we’ve pretty much covered everything. But again, I can’t stress enough that it’s imperative for subcontractors to be on top of their paperwork, because ultimately when a dispute does arise, it does become the battle of the paper.
Daniel: That’s a good point to end it on. Darren, thanks very much for joining us.
Darren: Thank you very much.
