For decades, the UK government has rightly focused on trying to protect consumers from rogue traders, poor workmanship and businesses that fail to deliver on promises made. The current protections in place have helped to raise standards, build trust and give homeowners more confidence when investing in their properties. There is still some way to go, but the progress made so far has made a real difference.
Yet while consumer protection has become a central area of focus for many sectors such as construction, home improvement, renewables and retrofit, there is another side to things that receives far less attention: the significant number of reputable businesses that struggle to recover payments from consumers for work completed. In an industry built largely on small and medium-sized enterprises, that challenge is becoming increasingly difficult to ignore. Even the largest retailers are being exposed to these issues, with many carrying significant amounts of debt.
A vital sector under pressure
Using the home improvement market as an example, this sector is a major contributor to the UK's economy. Households spend an estimated £60 billion annually on repair, maintenance and improvement work, with around £40 billion outsourced to professional tradespeople and installers. Nearly seven million homeowners are expected to undertake improvement projects, continuing the trend of improving rather than moving home.
£60bn
spent by households each year on repair, maintenance and improvement
£40bn
outsourced to professional tradespeople and installers
885,000
small and medium-sized construction businesses
Although there are some well-known brands behind these figures, the sector is dominated by SMEs. Construction represents around 885,000 small and medium-sized businesses, making it one of the largest SME sectors in the UK. SMEs account for 99.9% of UK businesses and 60% of all private sector employment.
For these businesses, close monitoring of cashflow is vital. Positive cashflow determines whether staff can be taken on, when suppliers are paid, if vehicles can be replaced and how future growth is funded. With the sector expected to continue growing at pace and with significant growth forecast in retrofit and renewables, the issue of payments being unfairly withheld needs to be addressed.
The other side of the consumer protection debate
Most disputes between consumers and businesses relate to genuine issues. Where there is a genuine problem, consumers should have access to fair and independent resolution routes so that they can seek redress. However, there is another category of dispute that is discussed far less openly and often gets ignored.
Across the sector, businesses regularly report instances where projects have been completed, products have been installed and customers are enjoying the benefit of the work, yet payment remains outstanding months or even years later. In some cases, concerns are raised at the point the final balance becomes due, while other relatively minor issues escalate into prolonged disputes that tend to leave payments disproportionately withheld by consumers.
This is made worse in situations where point of sale finance is involved, and as the consumer raises concerns, funding is not released by the bank. In some situations, these can be genuine complaints, but in many instances the allegations are fictitious or overstated. Either way, there is little business owners can do in situations such as this.
This is not an argument about consumers losing their rights. Far from it. It is simply a recognition that disputes can have consequences for both parties and that businesses, particularly SMEs, can be left carrying a disproportionate financial burden until matters are resolved. After all, businesses are consumers also, and currently the industry approach on this is very one sided in favour of homeowners. Despite payments being withheld, materials may have been purchased, and staff labour costs might have been paid. Suppliers will also expect settlement and therefore overheads continue regardless of whether the customer pays the final invoice.
Key insight
The work may be complete, but the commercial transaction is not at an end until full payment is made. This is where the problem is, as non-payment generally equates to increased cashflow risk.Why traditional routes often fail businesses
When payment disputes arise, the stock answer from most in the industry is: pursue legal action and sue them. In reality, this option can be fraught with problems, and is frequently neither practical, cost effective nor productive.
Other routes can include using solicitors, where costs can quickly become significant and the approach can deliver little return for the money spent on fees. Where businesses hold commercial legal expenses insurance, it might be possible to make a claim, but this type of product tends to be subject to limitations, and a claim may not be accepted if the chance of success does not reach the required threshold. Court proceedings tend to consume management time, create uncertainty and often require businesses to commit resources long before any outcome is achieved. The challenge for businesses is compounded by the pressures facing the justice system, where large backlogs exist.
For many businesses these routes are either not suitable, too time consuming or overly costly. This means that businesses, and particularly smaller firms, can be left feeling unsupported and with nowhere to turn for support. The result can mean writing off the debt. This isn't because the business's case lacks evidence; it is because the available routes to resolution tend to be either unavailable, slow, costly or uncertain. If matters remain unresolved, and a worst-case scenario should happen, a single large outstanding balance or a collection of unpaid invoices can quickly spell the end for many businesses.
Why ADR deserves greater attention
This is where we believe Alternative Dispute Resolution (ADR) has the potential to make a meaningful difference. ADR is designed to be a faster, more affordable and less confrontational alternative to court proceedings. For many years now, governments and regulators have promoted the benefits of this form of resolution service.
Within the home improvement and construction space, ADR has traditionally been associated with consumer complaints, and rightly so. Independent redress has played an important role in strengthening confidence across these markets. But across the market, disputes are changing and there needs to be a balanced approach that helps all parties, not just consumers.
Not all ADR schemes are built for every dispute
It is important to recognise that different ADR schemes were established for different purposes. Many consumer type schemes provide valuable support and have helped to improve standards across multiple industries. However, the schemes often operate within set criteria, which limits access for the parties in dispute.
Many schemes are part of a trade association or have network membership and cannot consider certain categories of dispute, including situations such as:
- Cases where the value exceeds a specified limit.
- Businesses seeking resolution of an unpaid balance.
- The primary issues concern financial compensation.
- The disputes centre on contractual issues.
- The issues relate to multiple parties.
- The matters fall outside the scope of a specific membership or framework.
- Disputes where specified time limits are exceeded.
Some of these criteria are understandable, given the design and financial arrangements of individual schemes. However, restricting access to ADR can create gaps in support where problems often extend beyond straightforward service issues. The reality is that many disputes these days do not fit neatly into a traditional consumer-versus-business model. Examples include a kitchen installation involving a retailer, installer and manufacturer; a renewable energy project involving finance providers, equipment suppliers and contractors; or a glazing installation relating to warranties, staged payments and contractual variations.
A more balanced future is needed
The solution is not to weaken consumer protection, but it is also not to create a system that favours either consumers or businesses. We need to rethink how disputes are handled, particularly when businesses are the ones seeking help. We need an approach that recognises the interests of all parties and provides access to fair, independent outcomes regardless of who raises the issue.
Consumers should have confidence that poor workmanship can be challenged and will be resolved. Businesses should have confidence that legitimate matters can be fairly assessed and payment completed. Both objectives are entirely compatible in a new elevated approach to ADR.
Moving the conversation forward
The UK has spent many years tackling rogue traders, improving standards and raising consumer confidence. That work should of course continue at pace. But if the industry is serious about long-term sustainability, it really must acknowledge the challenges facing the thousands of reputable businesses out there.
In a market worth tens of billions of pounds each year, populated largely by SMEs, their success critically depends on healthy cashflow and therefore dispute resolution cannot be viewed solely through a consumer lens. The industry needs to address this imbalance rather than simply accept it. Because the goal should never be to choose between consumer protection or business protection.
It should be access for all and fairness for all.
ADR could help close that gap, but only if schemes are designed to deal with the disputes businesses are actually facing.
This is a partner article contributed by Marley Risk Consultants and edited by London Construction Magazine for style and clarity. The views expressed are the author's own.