There is a staggering cost associated with slow payments in the construction industry. Rabbet’s annual Construction Payments Report found that there was $136 billion of additional construction costs caused by slow payments in the United States alone. At Billd, we believe that slow payments are one of the construction industry’s most significant issues. This article will explore the implications of the Rabbet Construction Payment Report for construction professionals working across the industry.
Highlights from Rabbet’s annual Construction Payments Report and Billd’s Reaction
67% of subcontractors report choosing not to bid on a project due to a general contractor or owner’s reputation of slow payments.
67% is an alarming percentage, but it isn’t entirely shocking. It’s no secret that the payment cycle in construction is broken (but companies like Billd and Rabbet are working to solve the problem of broken payment cycles in the construction industry). From owner to general contractor to subcontractor, payment delays are a constant struggle. Nevertheless, if a GC has a reputation for slow payments, it shows disregard for subcontractors, and it stands to reason that a subcontractor wouldn’t want to work with them.
That being said, there is a big difference between a general contractor who is slow to pay after having been paid by the project owner, and a general contractor who is slow to pay because they haven’t been paid by the project owner. It’s important to remember that general contractors can also get the short end of the stick when it comes to being paid on their projects.
Expert Advice: Don’t pass up bidding on a new project because your customer has a reputation for slow payments. Instead, use a Pay App Advance product and determine your rates on the Pay App Advance. Once you know your rates build this into your bid price to include any additional costs associated with your Pay App Advance. By doing this, you ensure that you:
- Make the same profit margins as you would with a customer that has a reputation for on-time payments.
- Get paid on time, every time.
- Can continue to grow your business by taking on more projects.
83% of subcontractors claim that late payments from a general contractor affect productivity and 86% of general contractors agree that delays in payment directly affect project deadlines.
Payment delays are going to affect productivity on a job site. If you weren’t getting paid to complete work, would you keep working? The answer is probably no, and it should be. Subcontractors are blamed for being lazy or leaving one project for another project, but it’s the general contractor’s responsibility to ensure subcontractors are being paid on time.
GCs that pay on time will stay on schedule, have more subcontractors who want to work with them, and be far more successful and competitive when bidding on new projects.
74% of general contractors have had to pay more for labor or charge more for labor to meet a project deadline in the last 12 months.
This statistic is at odds with the notion that labor rates should stay relatively similar over the course of 12 months. This means that general contractors are likely spending more on labor to meet a project deadline because they didn’t allocate enough budget for labor resources when planning the project.
If a GC pays subcontractors on time and at fair rates, they will be more productive, do better work, and be more likely to give the sub uninflated rates if more work is needed in later stages of the project.
72% of subcontractors would offer a discount in exchange for payments within 30 days.
On-time payments are essential to the relationships of subcontractors and general contractors. As a general contractor, if you want to be competitive, ensuring on-time payments can drastically reduce your overall project’s costs. As a subcontractor, having this discussion with your GC may be difficult, but if you are willing to reduce your cost to ensure payments within 30 days you should have that conversation with your general contractor. Odds are the GC will do their absolute best to ensure you get paid on time because at the end of the day you’re allowing them to save money on the overall project.
As a subcontractor, being paid within 30 days by offering a discount on completed work is a win-win for both parties. The GC increases their profit margins, and the subcontractor increases their cash flow, allowing them to grow their business.
How Billd is helping mitigate some of the biggest issues that subcontractors face in 2022
Billd gets down to the root of the problems facing construction financing so that our customers can grow their businesses just like a business in any other industry would be able to.
Our Material Financing and Pay App Advance products were created because subcontractors get the short end of the stick when getting paid on construction projects. The Rabbet 2021 Construction Payments Report reaffirms that subcontractors struggle with cash flow issues regarding material costs and payment delays. The report shows that 74.40% of subcontractors said that increased material costs affected their cash flow in 2021.
Going into 2022, you should ensure that increases in material costs, increase in labor costs, and payment delays affect your business as minimally as possible. One of the ways to set your business up for success is to find construction financing options that align with your business’s needs. Don’t know where to start? Give Billd a call. At Billd, we genuinely love to help contractors combat issues you’re facing in the industry, whether you’re a customer or not.
Download Rabbet’s Construction Payments Report here.