The construction industry is once again booming across the residential, commercial, and public sectors. However, despite strong projections for growth in residential (9%) and non-residential (4.6%) construction, many businesses are struggling with material costs, labor shortages, and slow payments.
Subcontractors are feeling the pain.
According to Billd, A staggering 57% of sub-contractors saw a decrease in profitability in 2021 and 59% of subcontractors are concerned about overall increased cost for the remainder of 2022 and into 2023.
Procurement is a major concern.
75% said material costs are a major factor
79% said lead times had a negative impact on their business
87% Expect lead times to get worse before they get better
88% expect the volatility in the market to get worse
Paying for material.
66% Use cash to pay for material prior to payment for work being received
89 % have terms with their suppliers
69% preferred terms over credit card and bank loans
Most common payment terms subcontractors have with suppliers.
10 days 3%
30 days 67%
45 days 14%
60 days 12%
More than 60 days 4%
Getting paid is also a major hurdle.
Even in the current construction boom, payment problems continue to affect companies across the industry. Only 5% of subcontractors report they “always” receive on-time payments
8% Pay for labor before receiving payment for job
Over 90% companies offer payment terms of 30 days or fewer, but fewer than report getting paid within those terms on average.
52% of subcontractors and 40% of material suppliers cite general contractor mismanagement as the source of payment problems.
Construction businesses report that slow payments contribute to wasted resources (45%), reduced profit (41%), and failure to meet payroll (18%).
5% Are concerned about working capital
Where are subcontractors getting the money to operate
59% Cash on Hand
54% Line of credit
9% Private lender
19% Material Financing
Despite the difficult landscape, over half of subcontractors are optimistic about their 2022 financial prospects.
71% Plan to grow their business
50% will seek larger projects
Most subcontractors recognize that collaboration and communication can go a long way to ensure payments roll in on time, increase efficiency and will lower their overhead.
Most believe technology will play a key role moving forward.
72% of subcontractors are open to trying technology to manage their business
63% are looking at estimating and takeoff software
65% are considering material procurement and payment technology
59% also believe project management solutions will be a factor
Technology and Risk
Here at DigiBuild we are focused on how technology can mitigate risks when it comes to information and documentation related to procurement, payments and project management.