The Cashflow Crisis Crippling Residential Building Companies

Are late payments killing your cashflow?

We’re hearing far too many stories from builders in recent months about their challenges with cashflow.

The banks are getting slower and slower when it comes to processing finance for the clients of residential home builders. They aren’t coping with the sheer volume of work across the board - from refinancing requests to rate changes and loan drawdowns, bankers are under the pump.

This means builders aren’t being paid on time and they’re in limbo waiting for cash they’ve already spent on supplies and contractors. 

It’s holding up jobs, forcing them to pay suppliers late, incurring late fees, and creating a snowball effect across their other projects.

Here’s what builders are telling us…

 “Getting paid on time has never been more difficult, and trades and suppliers are getting harder with their terms. I guess they are just spooked by all the insolvencies at the moment.”

“The banks are taking longer than ever to distribute funds. We have been forced to write a breach of contract notice and get our clients to cover the admin costs.”

“We had a bank refuse to release money to one of our clients because of a separate debt. It took two months for us to get paid anything, and they still owe us more.”

So What Is The Real Cost Of Late Payments? 

You may think, like many other builders, that late-paying clients are just an inconvenience that will “sort itself out” eventually.

But late payments are costing building businesses more than they think.

One example of that cost materialising is a bank overdraft so that you can pay suppliers. Of course, the bank then charges interest on that overdraft and you’re accruing debt for something that should’ve already been paid.

Late payments are also slowing down your build cycle. For every day, week, or month you run overtime on a project it pushes other projects back and messes with the working schedule for the year.

In the worst case, delayed projects can even mean you lose out on opportunities because other builders are ready to start when you’re waiting for cash from previous jobs. 

Even for the most professional building companies who have construction slots planned to allocate resources effectively, late payments can quickly eat into the space created between projects and cause issues.

The Snowball Effect

It’s so important for builders to get their money on time and keep everything flowing. 

If you’re already tight on cashflow because you pay upfront for supplies, not being paid on time can cause a snowball effect.

You don’t have the option of delaying supplier payments because they are tightening their payment terms by the day. And if you don’t pay them on time, they’ll simply turn off supply on all your jobs and the issues will start amplifying. 

Once you fail to put supplies on site in time, you’ll have to pause construction, put subcontractors off, and word will get around pretty quickly in the industry. Damaging your reputation. 

We saw this play out on an extreme level recently when Mahercorp in Australia went into administration primarily because their insurers changed terms from 30 to 7 days. 

The scary part? The snowball doesn’t stop gaining momentum when you leave work…

Financial stress on your business flows into your personal life. You start getting phone calls day after day from people that are overdue on jobs or invoices that need to be paid. 

Now you’re spending time fielding these phone calls, as well as chasing up the bank and juggling supplier demands, all whilst still running the business. It’s not only a waste of time but also creates an enormous amount of unnecessary stress. 

All of this compounds the challenges that builders face with time management and leads to stress in relationships with staff. Inevitably you take those problems home and put a strain on personal relationships. 

Is It All Helpless?

Builders facing cashflow issues and the flow-on effect they have on professional and personal relationships often feel helpless. That there is nothing they can do. 

After all, it’s not the client’s fault, they are waiting on the bank. So you’re just in limbo, waiting, chasing, and hoping.

This results in most builders sitting on their hands and taking very little action to help the situation. 

But there is more you can do, you just need to know where to start…

Find out How To Tackle The Cashflow Crisis Crippling Your Building Company in this follow-up article.