I recently attended the annual QBConnect conference and met some colleagues who specialize in the construction industry. We chatted about the pros and cons, rewards and challenges, and of course the specialized software and accounting practices.
So it was with particular interest that I read the results of this new survey of construction professionals — the majority of which are small businesses. It turns out that the construction industry lags behind all others in collection of accounts receivable, especially where subcontractors are concerned.
You might expect there to be repercussions for withholding or delaying payments—but you’d be wrong. The majority (78%) of people rarely or never charge interest on late payments. Desperate to get paid at all, over half (55%) of the contractors say they have gone as far as to negotiate payment terms or even provide a discount.
Collecting on retainage is a major pain point. Contractors say that it can be difficult and time-consuming to track down, which compounds cash flow strains and makes renting equipment and paying suppliers for the job itself extremely difficult.
Unfortunately, funds due to subcontractors are frequently used by general contractors to cover overhead on other projects, which leads to a large percentage of parties having to file liens in order to get paid.
The survey concludes with suggestions for improving the payment cycle in the industry, including: visibility documents; multi-tiered communication; trust- and relationship-building; down-payments/ installment payments; requiring the project owner to pay for materials and supplies; and making information accessible to all parties.