Payment delays may be another byproduct of the pandemic. Only 11% of construction businesses say they always get paid in full, which is a 74% drop from 2020 and down 82% from 2019. Additionally, only 9% of companies say they always get paid on time, a decline of nearly 60% from the previous year.
This is according to a survey conducted by Levelset, a construction software company that aims to help contractors and suppliers simplify their finances. The company has released the 2021 Construction Cash Flow & Payment Report, based on a survey answered by 764 construction professionals to explore challenges facing those in the building industry.
Being able to predict and manage payment reliably is important for all businesses, but it is especially challenging for the construction industry, the study said. “Payment reliability was on the decline even before the pandemic, and construction businesses reported a sharp drop in 2021.”
As the years go on, the numbers continue to drop. The report explains that each construction project among the different sectors is handled differently “Residential construction companies are up to four times more likely to consistently collect payments in full and on time than their counterparts in commercial and public construction.”
According to the findings, “general contractors are at least four times more likely to get paid within 30 days than subcontractors and suppliers. For 1 in 5 sub-tier companies, collection times regularly extend beyond 60 days.”
The report explains there is a cash-flow gap on different companies, due to the industry being “credit-heavy.” After 40 days, Levelset reported, 20% of businesses are cash-flow negative, once paying subcontractors, suppliers and vendors without collecting the payment necessary to cover the costs. Alternatively, about 48% of all construction businesses report relatively healthy profits, with margins on a typical project exceeding 10%.
In terms of collection speed, residential construction companies outperform their counterparts — homebuilders are three times more likely than commercial contractors to collect a payment within 30 days of invoicing and five times more likely than those on public projects.
Positively, the survey found that over the past year, construction companies have invested in technology and digital solutions to adapt to remote work. Despite heavily relying on physical paper documents in the past, more and more companies are making progress towards electronics. The study shows that “83% of construction businesses have the ability to accept electronic payments… 79% say it has helped their company get paid faster.”