Dive Brief:
- Late payments continue to plague the construction industry and inflict significant financial damage to contractors, according to a survey from construction finance software firm Rabbet conducted in September.
- In the past year, late financial payments cost the industry $208 billion. The figure is a 53% increase from 2021’s total of $136 billion. The report noted, however, that while the increase was large, it was par for the course given the turbulent economic climate surrounding contractors, which is currently fueled by inflation and interest rate hikes.
- In addition to the financial burden, 37% of all respondents reported that late payments led to delays or work stoppages. The survey said that some contractors reported boosting their bids from 5% to 10% to help absorb costs.
Dive Insight:
Surveyors asked 137 general contractors and subcontractors across the U.S. to answer questions on how they managed working capital, bidding decisions and project risks in the face of slow payments during the last 12 months, according to the report. Of the respondents, 57% were general contractors and 43% were subcontractors. About half of both were small businesses worth under $5 million.
The survey found that 49% of subcontractors waited 30 days or more for their payments to come through, a number virtually unchanged from 2021, according to the report. However, the problem also extended to general contractors, 62% of whom reported financial costs as a result of floating payments. These payment issues can make their way to the developers and financiers of a project, who can eventually suffer from project delays and higher bids on jobs.
“The risk of contractors going out of business skyrockets in environments like this and furthers the necessity for a better payment process in general,” Will Mitchell, Rabbet CEO, said in the release.
That payment process is a vacuum that companies such as Rabbet and contech giant Procore are attempting to fill. Fintech providers have flooded the space, eager to market services that promise immediate or expedited payments to subcontractors.
