In early June, Contract Simply, a construction loan software that helps manage monthly draw requests, released its Construction Payments Report 2018 titled, “Why the speed of construction payments matter.” The study was conducted to evaluate how slow pay affects the construction industry as a whole.
The study, which was later reported on by Construction Dive, revealed that late payments in the construction industry cost $40 billion annually.
What is Slow Pay
Slow payments are known as “business as usual” in the construction industry. In fact, it takes longer to get paid in construction than it does in just about every other industry. A “slow payment” is one that is made 30 or more days after its due date. Because of the cumbersome construction payment structure (from contractors to subs to suppliers, etc.), getting paid on time is not the status quo in the construction industry.
Slow Pay Statistics
Contract Simply’s study, which was distributed to 1300 contractors across a variety of trades, reveals:
- 88% of contractors wait 30+ days for payment, with 46% waiting between 60-90 days
- 46% of contractors tap into their personal credit lines or business savings to cover floating costs
- 83% of contractors have filed liens because of slow payments
- 70% of contractors are willing to offer discounts for net 30 payments, putting an estimated $18 billion back into the industry
Why Slow Pay Matters
In a $1.2 trillion industry, nearly $40 billion of that money is tied up in fees due to slow payments. Contract Simply found in its study that the opportunity for net 30 payments could potentially free up over $18 billion of value, as well as provide a plethora of benefits to the entire hierarchy of construction workers. Speeding up the payment process ensures working capital, lowers project costs, and helps developers attract the best subcontractors in a competitive labor market. It also draws interest from additional borrowers and helps to manage more profitable loan portfolios.
Contract Simply said it best:
“Accepting the status quo has consequences on the overall industry.”
By switching up the present state of the construction industry with digital invoicing and payment solutions, companies can help to expedite payments and avoid the seemingly never-ending cycle of slow pay.
Prevent + Manage Slow Pay with DrawAlert
DrawAlert is dedicated to changing the construction industry by supporting a transparent, professional, and respectful business relationship between all stakeholders on a construction project. By utilizing DrawAlert’s management software, you’re supporting construction-funding transparency, which increases efficiency, improves cash flow, and advances timely payments.