- Just one construction business in 10 always gets paid in full, a 75% drop from before the pandemic, according to the 2021 Construction Cash Flow & Payment Report. Payment delays have also worsened: Just 9% of companies always get paid on time, a decline of 60% from last year.
- The report from construction software firm Levelset found that some of the financial risk correlates directly to the construction payment chain. General contractors are four times more likely than subcontractors to get paid within 30 days, and 50% more likely to get paid in full. One in five subcontractors, suppliers and other sub-tier parties regularly wait beyond 60 days to collect payment.
- The gap widens even further when it comes to collecting retainage, which 61% of all businesses say is "very important" or "the most important factor" for cash flow. Fifty-six percent of subcontractors wait more than 60 days to collect retained funds, compared to just 16% of general contractors.
The study found that payment speed also correlates strongly to project type. Residential construction companies are three times more likely to collect payment within 30 days than those on commercial projects, and five times more likely than those on public projects. And while only one in five homebuilders (17%) say they always get paid on time, they vastly outperform those on government projects (7%) and commercial jobs (4%).
"The pandemic drove financial uncertainty through the roof and put an extra kink in the flow of cash on projects across the country, " said Scott Wolfe Jr., CEO of Levelset. "Payment delays throttle a company's ability to be competitive, take on new projects, and grow their business."
After 40 days, one in five construction businesses is cash flow negative, having already paid their subcontractors, suppliers, and other vendors — but still waiting for payment. Forty-seven percent of companies say payment delays reduce their profit, and one in three turn to loans or other financing to bridge the cash flow gap, adding interest and other charges.
To mitigate potential payment issues or to collect payment, contractors report an increase in preliminary notices and mechanics liens. Just over half of companies (51%) send a preliminary notice on a typical project, up from just 29% in 2020. Lien claims are on the rise as well, with 71% of construction businesses filing a lien over non-payment in 2020, a 22% increase from 2019.
Construction companies also report investing in other solutions to help speed up payment. Some of the findings include:
- 83% of construction businesses have the ability to accept electronic payments and 79% say it has helped their company get paid faster.
- Companies using software for tracking and processing payments grew 113% year-over-year.
- Software for payment paperwork is up 67% since 2019.
- Just 8% of construction companies say they don't use software at all — down from 21% in 2019.