Rabbet, a leading intelligent construction finance software for real estate lenders and developers, today released the 2019 Construction Payments Report with insights into the direct and indirect costs associated with the speed of payments in the construction industry.
Rabbet partnered with Procore, a leading provider of construction management software, to distribute the survey to general contractors and subcontractors from a diversity of trades. Conducted in August and September 2019, the survey captured how 184 respondents across the U.S. managed working capital, bidding decisions, and project risks in the face of slow payments during the last 12 months.
General contractors and subcontractors estimate that the cost of floating payments for wages and invoices adds a combined average of more than 5 percent to total project costs, representing $64 billion in excess cost to the industry. Additional key findings include:
- 30 percent of all respondents reported that work has been delayed or stopped due to a delay in payments to crew members in the last 12 months.
- 63 percent of subcontractors chose not to bid on a project due to a general contractor or owner’s reputation of slow payments in the last 12 months.
- 72 percent of subcontractors would offer a discount for payments within 30 days, resulting in an estimated industry-wide savings of $44 billion.
“Lenders and investors can be up to five degrees removed from a subcontractor in the connected construction economy. This distance makes it difficult to see the serious impacts of payment delays,” said Will Mitchell, CEO of Rabbet. “The repercussions of slow payments affect everyone in the construction industry. It is imperative for industry participants to work together to eliminate the manual, complicated processes involved in invoice approval and payment distribution.”
The survey revealed that 43 percent of subcontractors wait between 30 and 60 days for payment, while an additional 30 percent of those surveyed wait for more than 60 days. This confirms the PWC Working Capital Report 2018/19 that engineering and construction sectors in the U.S. suffer from 51 days sales outstanding.
General contractors indicate support for improving working capital conditions for subcontractors. 95 percent of general contractors report seeing value in paying subcontractors faster, and 74 percent of general contractors report paying at least some subcontractors and vendors more frequently than once per month.
“We frequently hear that slow payments cause project delays and create financial risk for owners and contractors,” said Katie Rapp, Senior Product Marketing Manager of Payments at Procore Technologies. “This survey confirms that pain. We firmly believe that if everyone involved in the construction project value chain, from lender to vendor, embraced the technology solutions available, project costs could be reduced by billions of dollars. And as a result, contractors will have the confidence to make payments faster, relationships with project partners will improve, and projects will get completed on time.”
Rabbet is bringing efficiency, accuracy, and transparency to the complex connected construction economy. The intelligent construction finance platform uses machine learning to parse documents and connect information for reduced administrative burden, verifiable compliance, and faster decision-making for real estate lenders and developers. Based in Austin, Texas, Rabbet is venture-backed by QED Investors, Camber Creek, and Goldman Sachs. For more information, please visit www.rabbet.com.