Late payments and transaction errors run rampant in the construction industry. The sector’s days sales outstanding (DSO) — a measurement of how long a company waits to receive payment for its products or services — clocks in at a staggering 94 days.
The downstream ramifications of these payment delays can spell disaster. Delays cause cash flow disruptions, resulting in missed paychecks, vendor payments and project delays. New digital technologies are critical to reducing payment delays and bringing greater financial stability to the sector.
The “Money Mobility Tracker®” weighs the impact of late payments and outdated payment methods within the construction industry. It highlights the crucial need to modernize payments and expedite transactions to minimize costs, maintain project schedules, ensure timely compensation to employees and bring stability to the entire sector.
Payments in this industry are typically late, which can have damaging downstream effects on processes. One of the most direct consequences of these payment delays is increased costs across the entire sector.
In the United States, payment delays in the construction industry contribute to an overall increase of $273 billion in bids and drive up costs across the board. General contractors and subcontractors increase their bids between 6% and 10% to compensate for the inevitability of late payments and to keep their businesses operating in the black as they await payment.
Late payments do more than disrupt projects — they inflict hardship on the workers driving these projects forward. While late payments harm all parts of the construction industry, the most affected segment comprises contractors and subcontractors. Upstream delays stanch cash flow downstream, leaving businesses struggling to meet financial obligations. These obligations include those made to workers, such as making payroll on time.
In the U.S., contractors wait for payment an average of 74 days for a given job. This lack of timely payment means that 73% of contractors had to pay out of pocket for materials in 2023, up from the 66% in 2022 that reported the same.
The construction payments situation is not unfixable but will require a concerted technological effort to make changes. Leveraging digital technology to expedite payments will bring transformative change to the industry and could improve the financial prospects of workers and small businesses alike.
One promising solution is on-demand pay, which is growing more popular among construction workers living paycheck to paycheck. Sixty percent of Americans live paycheck to paycheck, making any unexpected expense potentially disastrous for long-term finances. Providing workers real-time access to wages instead of making them wait the traditional two-week pay period means they can access funds when they need them and avoid dangerous stopgaps like payday lenders.
The “Money Mobility Tracker®,” a collaboration with Ingo Money, weighs the impact of late payments and outdated payment methods within the construction industry. It highlights the crucial need to modernize payments and expedite transactions in the industry.