Survey shows more than 90% of companies affected

A new survey of contractors and service companies in the energy sector has revealed that more than 90 percent of companies report that late payments from customers had a significant (38 percent) or very significant (54 percent) impact on their overall financial performance.

The survey, conducted by the Energy Chamber, indicated that chasing down late payments was taking a toll on company management, with 77 percent of respondents reporting that this issue took a “significant” portion of their management time. Nine percent of respondents went so far as to state that the majority of their management time was devoted to chasing down debt.

One respondent to the survey summed up their views on issue by stating “We want the business but late payment is literally killing us.”

A number of contractors reported that the issue of late payments was adversely affecting their relationships with the major customers in the sector.

Some service companies and contractors reported that they increased prices for particular customers who they knew had a bad track record of making late payments, while others said they had decided not to bid for work with some customers because of the customers’ payment history.

Generally, however, service companies and contractors reported that they tried not to let the issue affect the relationships and that they did not feel there was much they could do about the situation.

One contractor summed up their feelings by saying, “As a small company, you are forced to take the pressure and continue to do the work.”

The majority of respondents (68 percent) reported that they believed the situation with late payments had deteriorated recently.

What's the impact of late payments on your finances?

This deterioration in payments could be due to a tight cash flow in some operator companies as a result of low oil prices, although the finding should be treated with caution, as it could indicate a self-selecting bias. (Those companies currently experiencing problems may have been more likely to complete the survey.)

The percentage of receivables more than 60 days overdue varied greatly, with responses ranging from zero to 80 percent. On average, however, respondents said that 47 percent of their receivables were 60 days or more overdue.

The service companies and contractors cited a number of reasons for late payments from customers, with delays in receiving all necessary paperwork such as purchase orders or job completion certificates cited as the most common reason for the delay in payments.

State-owned companies in the energy sector were identified as the least-punctual in making payments, with 81 percent of respondents reporting problems with late payments from state-owned companies. However, multinational operator companies were also identified as regular late payers by 62 percent of respondents.

One large multinational operating company told EnergyNow that they were aware of the problems that contractors’ late payments caused and that in the past they had probably been guilty of not paying enough attention to this issue.

They confirmed that problems typically arose when there were discrepancies between purchase orders, job completion certificates and final invoices, especially when there are changes in scope.

However, over the past few years they have focused intently on fixing this problem, especially during major maintenance programmes when there are a large number of contractors on site.

During these high-activity periods, they have instituted a system of dedicated teams to ensure that all paperwork is completed on the job site when changes in scope occur.

This has significantly improved their ability to pay all contractors what they are owed, and to do so in a timely manner. Upper management also constantly monitors their payables to ensure that they continue to meet their targets for on-time payments.

Despite the efforts of some operator companies, it is clear that the issue of late payments continues to be a major concern for many service companies and contractors in the energy sector.