Getting paid in most industries takes a long time. But, in the construction industry getting paid is even more of a challenge. PYMNTS recently reports that the Days Sales Outstanding – DSO – for construction industry firms is 94 days. Your eyesight is fine, you’ve read that right – a brutal 94 days!
Considering construction accounts for 15.4% of the EU’s non-financial business sector SMEs (and 14% of SME-produced employment), 94 days can create quite the impact on the health of a huge chunk of European business.
Construction companies have high DSO
What’s DSO? Let’s define that before moving on. DSO is the average amount of time for a company to get paid after invoicing. So, for construction firms, it takes approximately three months on average to receive money for goods and services delivered and invoiced. Wonder what they could do with that cash if they received it earlier?
PYMNTS goes on to say, ‘Because of these cash flow disruptions, contractors and subcontractors must increase their bids, pay out of pocket for materials and use credit cards to cover payments.’ But, we know these issues can be avoidable, just keep on reading.
DSO isn’t the only concern for construction companies. Let’s look at some other recently reported numbers.
Subcontractors hit hard
According to a study by Billd, focussing on US data, subcontractors are hit particularly hard. They carry an unfair burden in construction industry financing. Some eye-opening stats they report include:
- 57% of subcontractors report declining profits
- Almost 25% report obstacles to obtaining financing
- 32% report their supplier terms were reduced (and 90% of subcontractors use supplier terms)
- Over half of those wound up with insufficient terms
- 73% are paying out of pocket for materials before they get paid by general contractors
2024 EU construction sector forecast
How does 2024 look? According to ING, the forecast doesn’t look great. They predict a small 1% average decline in EU construction volume. But, for some countries that dip will be ruthless, e.g. they predict -19.5% in the Netherlands. The mid-2023’s material suppliers/creators slowdown plays a role – there was a 13% average fall in production by June.
What about construction subsectors?
ING shows that subsector confidence for the infrastructure sector, non-residential sector, and specialised construction are all moving into the negative. It looks like the desire to push high prices is falling, going down from almost half of EU construction suppliers in Aug ‘22 to just about 5% in Aug ‘23.
What about construction industry bankruptcy?
ING uses Belgium as an example, saying that bankruptcies there have “surpassed [the peak level during Covid-19 pandemic] in the second quarter of 2023.” And, it cites the main culprits of why these construction companies fail as high material costs and declining demand.
Construction Briefing provides more grim construction company figures. In Germany building companies filed for insolvency 20% more in Jan-April 2023 than for the same period in 2022. In the Netherlands, the first 8 months of 2023 saw a 38.7% increase of construction companies declared bankrupt vs. the same period in 2022. Meanwhile Sweden saw an increase of 35% for building and construction firms going bankrupt in the first 8 months of 2023 vs. the same period in 2022.
Survive to ‘25 – and beyond!
How can construction companies, especially SME subcontractors, beat the ‘Survive to ‘25’ sentiment, and succeed and thrive well into the future?
That’s where Terms.Tech comes in, bringing several clear advantages designed for what construction companies want and need, i.e. getting paid faster!
- Suppliers get paid upon proof of delivery – that’ll reduce DSO dramatically.
- Your buyers get payment terms from 30 to 120 days – that means flexible breathing room.
- Pass late payment risk and collections over to Terms.Tech.
- And, unlike other BNPL and B2B payment solutions around Europe, Terms.Tech operates throughout the entire EU, plus Norway, Iceland, Liechtenstein and Switzerland – providing European cross-border payments as smooth as silk!
Thanks to those advantages, firms are able to maintain positive cash flow, invest in new projects, deliver high-quality work, sellers sell more, and business partners foster long-term relationships leading to increased customer lifetime value.
Get in touch and enable Terms.Tech to help your construction business not only survive but also grow!
Want to read more? See our Construction and Trade Supplies use case.
