The recent ISG collapse has put the construction industry in the spotlight once again. As a cornerstone of the UK economy, employing millions and contributing 7 per cent to the country’s GDP, the sector is plagued by a persistent issue: cashflow. Payment delays are a major problem, particularly for small and medium-sized enterprises (SMEs), creating a chain reaction that disrupts the entire industry. For many subcontractors, 30-day payment terms – viewed as the gold standard – can translate into 60 days of cash outflow before they see a penny.
Subcontractors deliver complex projects on time and within budget. However, long payment cycles can leave them in a cashflow crunch, limiting their ability to buy materials in bulk or secure favourable terms with suppliers – ultimately driving up their costs. A struggle to pay workers on time can lead to decreased morale and productivity, affecting the quality of work and causing project delays.
The lack of working capital doesn’t just stunt growth – it can be a death sentence. Without sufficient cashflow, subcontractors are forced to turn down new projects, miss out on growth opportunities and, in severe cases, face financial insolvency. This doesn’t just hurt the subcontractor; it disrupts the entire project timeline, drives up costs and strains relationships between main contractors and their subcontractors.
Financing options for subcontractors are limited, and the situation is only getting worse. Traditional banks often perceive high risks, leaving a void for factoring companies to exploit. These companies demand steep discounts of up to 8 per cent on invoices and take over the entire ledger, trapping SMEs in a cycle of unbreakable debt.
But the industry doesn’t have to stay stuck in this cycle. One of the most effective strategies is also one of the simplest: collaborative accelerated payments. This financial strategy, used for years by firms like Vodafone, AstraZeneca and Airbus, can benefit both main contractors and subcontractors, providing a mechanism for accelerated payments in exchange for small discounts.
For main contractors, accelerated payments address margin challenges and help increase operational efficiency. Accelerated payments also strengthen subcontractor relationships, fostering loyalty and a more reliable supply chain, and are often more cost-effective than handling project delays, disputes or subcontractor insolvency.
Accelerated payments allow subcontractors to access cash quickly without resorting to high-interest credit options. By receiving early payments, subcontractors can better manage their cashflow, ensuring they have the necessary funds to maintain the quality of their work, avoid costly delays and position themselves for future growth.
Traditionally, accelerated payment demanded significant manual effort from project and finance teams to agree discounts and payment dates with each subcontractor. Copay eliminates this complexity through digitisation.
Alexander Dietrich, chief construction and design officer at Maybourne Hotel Group, who has been advising Copay, says the challenge is convincing main contractors that their supply chain’s cashflow should be more of a priority. “They worry about where the next project is coming from or how to manage a project, but there are a lot of people in their finance departments looking at cashflow,” he says. “A system like Copay can be a great additional tool.”
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