Contract Simply, an automated workflow solution that reduces risk in construction loans, released its 2018 Construction Payments Report at American Banker’s Digital Banking conference.
Contract Simply conducted an industry-wide study to evaluate how slow payments affect development project costs, risks and project completion. It distributed the survey to 1,300 contractors representing a wide diversity of construction trades. The survey’s findings indicate that slow payments in the industry result in $40 billion in superfluous costs annually.
The survey results revealed that 41 percent of subcontractors wait between 30 and 60 days for payment, while an additional 46 percent of those surveyed wait 60 to 90 days. This confirms the PWC Working Capital report that engineering and construction sectors in the U.S. suffer from over 50 Days Sales Outstanding (DSO).
When asked about managing cash flow, 83 percent of the contractors surveyed have been forced to file a lien due to slow payment, with a majority reporting they have used business savings or a line of credit to float payments to others. For 75 percent of the contractors, this means incremental costs in the form of finance fees and administrative time averaging 3.3 percent of the total project costs, which equates to billion for the industry as a whole.
More than 70 percent of respondents indicated that if construction lenders and borrowers were to offer net 30 payments, they would collectively be willing to provide $21 billion in discounts.
Click here to download a full copy of the report. For more information about Contract Simply, visit www.contractsimply.com.
