The construction industry has long believed that paper checks guaranteed the safe transfer of funds. But fraud risk for checks has actually risen over the past several years.
Cash flow is always an issue in the construction business, but this year it’s magnified by the pandemic, materials prices and supply bottlenecks. This year’s cash flow and payment report from Levelset found that only one in 10 contractors get paid in full. There are ways to reduce the time and effort you put into chasing payments — if you’re ready to adopt technology.
That one in 10 represents a 75 percent drop from pre-pandemic payment patterns, according to the Construction Cash Flow & Payment Report, released annually by Levelset.
“The decrease in payment reliability is tightening the financial vise on construction companies,” said the New Orleans-based construction software developer. More than 760 construction professionals were surveyed.
The results tie financial risk directly to the construction payment chain. The survey found that general contractors at the top of the chain are four times more likely than subcontractors to get paid within 30 days and 50 percent more likely to get paid in full.
“Subcontractors, suppliers and other sub-tier parties bear the brunt of the financial burden, with one in five regularly waiting beyond 60 days to collect payment,” reported Levelset. “The gap widens even further when it comes to collecting retainage, which 61 percent of all businesses say is ‘very important’ or ‘the most important factor’ for cash flow.”
The report reveals that 56 percent of subcontractors wait more than 60 days to collect retained funds, compared to 16 percent of general contractors.
Payment speed also correlates strongly to project type, according to the survey. Residential construction companies did better than those in both public and commercial construction, actually three times more likely to collect payment within 30 days.
Housing contractors also were five times more likely than those on public projects. And though only one in five homebuilders are consistently paid on time, they outperform those on government projects and commercial jobs.
“The pandemic drove financial uncertainty through the roof and put an extra kink in the flow of cash on projects across the country,” said Scott Wolfe Jr., Levelset CEO. “Payment delays throttle a company’s ability to be competitive, take on new projects and grow their business. We are seeing this happen across the industry, with companies further down the pay chain experiencing more of these pains.”
Relieving the Headaches
The survey found that just past the 40-day …….