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Carillion is expanding its controversial payment system, which requires subcontractors to extend their payment terms to 120 days, in what it claims is a response to demand from its suppliers.

The contractor launched its 鈥淓arly Payment Facility鈥� in March this year, drawing criticism from MPs and industry leaders who attacked its complexity and said it flew in the face of efforts to improve payment terms for SMEs in the supply chain. The 鈥渞everse factoring鈥� system allows subcontractors to be paid earlier in return for a small charge.

Carillion 鈥� which has previously insisted no firm would be financially worse off under the system - this week pledged to roll out the scheme further to cope with demand.

A Carillion spokesperson said the original scheme, created with Royal Bank of Scotland, had received an 鈥渁mazingly positive response鈥� from tier one suppliers, and said that Carillion was now in talks with other major banks to extend the scheme.

A survey by Carillion found 89% of suppliers using the system felt it has had a positive effect on their ability to get paid promptly and flexibly, while 87% would recommend it to other firms.

鈥淲e are having to get more lines of finance to meet demand,鈥� the spokesperson said. 鈥淥ur treasury guys are working overtime to get more banks to join the scheme. I can鈥檛 emphasise how popular it has become.鈥�

He said critics of the system had been proven 鈥渁bsolutely wrong鈥� in their assessment of it, adding: 鈥淚t obviously took a little time for the scheme to be understood, because it was new to our sector.鈥�

He said that the facility was open to all subcontractors, around 5,000 in total, and that 230 had signed up so far. But he said only around 400 of Carillion鈥檚 most regular subcontractors were eventually expected to use the system.

It also emerged that some of Carillion鈥檚 suppliers are adopting their own version of the system as it spreads through the industry.

Gerry Marapao, finance director at concrete specialist AJ Morrisroe & Sons, said Carillion had done the firm a 鈥渞eally big favour鈥� introducing the system and he was now adopting a similar one for his own supply chain. He said the firm鈥檚 payment terms had been cut from 75 days to 45 days under the new facility.

When asked about the criticism the system had received he said: 鈥淚 don鈥檛 quite understand what the criticism was about [鈥�] I think people straight away said 鈥極h no鈥� without really looking into it.鈥�

But Rudi Klein, chief executive of the Specialist Engineering Contractors Group, branded Carillion鈥檚 survey a 鈥渨hitewash鈥�, saying it did not tally with what firms were telling him.

鈥淚 have spoken to about 300 or 400 firms [about this] and I have to say there are usually hoots of derision,鈥� he said.

Klein added that only a 鈥渢iny minority鈥� of Carillion鈥檚 suppliers had taken up the scheme.