Prompt Payment and Risk Management

An interesting study was published recently on the impact of slow payments in the construction industry. It estimated that the average payment cycle for subcontractors is 54 days, and that is costing the industry over $40 billion dollars each year. That's a staggering figure, but one that makes sense when you consider the cost of construction rising and the amount of financing it takes for subcontractors to stay in business. This added cost comes from a number of sources:

  • Finance charges from lines of credit subcontractors must take out to afford materials.
  • Late fees assessed by suppliers when subcontractors can't pay bills due to non-payment.
  • Lost revenue from liquid assets being stuck in accounts receivable versus short-term investments.
  • The inability for subcontractors to obtain discounts from their vendors for prompt payment.
While this stresses the importance of making prompt payments on construction projects for the benefit of subcontractors succeeding, there is...

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