Late-paying customers, rather than falling demand, pose the single greatest threat to construction firms, new research by the payment provider Lopay has revealed.
Lopay, which is a partner of the National Federation of Builders, analysed the experiences of small construction firms across the UK and found that half (50%) ranked late payment as the greatest danger to their business. That’s twice as many as the proportion who see falling demand as the biggest threat (24%) and nearly triple the number most concerned by the rising cost of materials (18%).
The research also revealed the lengths builders have to go to when chasing up late-paying customers. A third (34%) have downed tools and refused to resume work until an outstanding invoice is paid, and more than a quarter (28%) have threatened legal action in order to get a customer to settle up.
The findings come after official statistics showed that 4,165 construction firms went bust in England and Wales in the year to the end of March, the highest level since the Financial Crisis.1 Construction sector demand fell sharply over the same period, with new orders across the UK falling 5.7% year-on-year and 12.4% in the first quarter of 2023 alone.2
At 19% of all company insolvencies, construction accounts for more business failures than any other sector of the economy. Lopay’s research reveals the strain that late payment is putting on builders’ finances; 70% of those polled said their cashflow has been impacted by clients failing to pay on time.
Half (50%) of builders said they have struggled to pay for materials and 30% have been unable to take on new work as a result of late-paying clients, with a further 8% missing a loan repayment or vehicle lease payment.
In response, many builders have changed the way they take payment. While two thirds still send a final invoice to the customer when the work is completed, 58% take a deposit before starting work and 28% now take card payments in person at the end of each week.
Richard Carter, Founder of Lopay commented: “When times are tough, keeping on top of your cashflow is the difference between life and death for small businesses. Nowhere is this truer than in construction, where the epidemic of late payment is pushing many contractors to the edge.
“Lopay gives builders an easy way to take payment on the spot, or collect deposits in advance, rather than waiting weeks for the customer to make a bank transfer. This allows builders to get paid as soon as the work is completed, ensuring they don’t end up out of pocket and don’t waste every Friday afternoon chasing unpaid invoices.