Late payments are a notorious issue within the construction industry, and the problem is exacerbated in times of economic volatility when cash retention becomes a greater priority for many businesses. As money moves through the payment pipeline, the further down from the top you are, the longer you’ll be waiting to be paid. The squeezing of subcontractors and suppliers is essentially accepted practice within the industry, and the intervals between payments continue to increase.

For smaller sized firms, late payments can have devastating consequences on the company’s financial stability. If payments aren’t coming in as agreed, contractors can be left to float the cost of the project themselves, using their own money to ensure the job is completed. From gas for your vehicle(s) to the price of materials and payroll, costs can add up quickly.

A 2019 survey of 184 contractors and subcontractors in the United States found that floating payments for wages and invoices added on average more than 5% to total project costs, resulting in $64 billion in excess costs for the year. 30% of respondents had been forced to delay or stop working on a project due to payment delays in the preceding 12 months.

The impact of late payments is a massive problem and contractors, particularly subcontractors, have felt this pain for decades. Until recently they’ve taken matters into their own hands, often finding their own ways to hack the system and try to get paid for work more promptly.

One way this happens is by front-loading their schedule of values. This adds more weight to line items that occur near the beginning of a project, which theoretically allows them to get paid for work they’ve yet to complete. By the time they actually receive payment, they’ve already completed the work. In many ways it’s more fair than what you might initially think, and for most of these contractors, it’s the only way they can make ends meet. However, needless to say this is not sustainable and is definitely not a long-term solution to this industry problem.

Keep reading this blog on Ontraccr.com

• 
•