Subcontractors Forced to Play the Payment Waiting Game

Getting paid on time has long been an issue for contract glaziers, and now there’s a report backing up that concern. According to Levelset’s 2022 Construction Cash Flow & Payment report, general contractors are four times more likely than subcontractors to report getting paid on time. The survey, which saw 519 respondents including general contractors, subcontractors, material suppliers and restoration suppliers, also found general contractors twice as likely to be paid within 30 days compared to subcontractors.

One out of every five subcontractors surveyed says the average customer takes more than 60 days to send payment. As far as why payments come late, 52% of subcontractors blame project financing while another 47% point to general contractor mismanagement. Lastly, poor communication came in at 30%. General contractors also blame project financing, though to the tune of 40%, followed by poor communication at 30% and cash-flow issues at 24%.

Bob Massey of Massey’s Plate Glass & Aluminum in Branford, Conn., says his company is having to wait as long as 70 days for payment and is, in some cases, still trying to secure payments from March and even as far back as February. The company has a department dedicated to those efforts alone.

But the biggest challenge his company faces concerns deposits for specialty items.

“This is even beyond getting paid because it’s a requirement for you to secure materials,” Massey says. “And you have to hope at the end of the day that they’re going to still be in business and have the materials.”

Those issues combined, Massey says, turn his company into a bank. While he notes there are plenty of good developers that pay on time, late payments are increasingly becoming more of an issue.
“It’s up to us to have our own financing available so we can take care of this,” he says. “We’re basically the bank. We’re an established company, but not everybody is like us. Some guys need money up front because they’re smaller.”

Noted consequences of late payments include wasted time and resources, 45%, reduced profits, 41%, and project delays or stoppages, 31%. Although, 23% of respondents say late payments come with no significant negative impacts. On the other hand, 18% say late payments result in an inability to meet payroll and 14% say late payments mean they have to stop taking on new projects.

The report notes that many within the industry don’t take steps to alleviate slow payments. For example, 48% of respondents say having financially secure customers is the most significant factor in securing fast payment. At the same time, half of the subcontractors surveyed say they rarely or never pre-qualify customers.

“In other words, many companies are generally not looking into the financial security of the customers they work with—although they report that this is the most likely reason they’ll get paid more quickly,” the report notes.

Furthermore, according to the report, approximately three-quarters of those surveyed say they would send in-voice reminders or make follow-up calls to ensure payment. But respondents were far less likely to take strong action, as only 40% indicated they would consider sending a notice of intent to lien and 34% a demand letter. Respondents cite fear of losing customers and a belief that such actions would not result in payment as reasons for lien reluctance. However, only 13% of respondents say they would no longer work with a subcontractor that filed a mechanics lean on their project.

“I think what would work better is like what they do in Europe where you have a letter of credit and you’re able to draw from that letter of credit as things are shipped,” Massey says. “We just seem to be a little too open on stuff and everyone holds us to different standards. But we’re always the ones waiting to get paid.”