The construction industry is the backbone of any country’s development and entrepreneurial spirits. It brings forward the physical infrastructure to propel multi-dimensional economic growth. Despite its financial contribution towards the development of a nation, the industry is fret with multiple challenges, and payment delays present the grievest of them all. Statistics indicate that more than 1,700 construction companies closed their doors in 2017 in Australia, with notable names like RCR Tomlinson and York Civil, leaving their sub-contractors deserted and overburdened with debt payments.
The Problem with Large Construction Companies
It’s not new to find large construction companies dictating terms of engagement with contractors or sub-contractors, including payment terms, which affects cash flow throughout the supply chain. The highly competitive nature of the construction industry forces sub-contractors to underbid for projects. Even if the sub-contractors complete their work on time, there are no guarantees that their payments are made on a timely basis.
Payment Issues in the Construction Industry in Numbers
The 2017 Australian Small Business and Family Enterprise Ombudsman report highlight some key payment issues prevalent in the construction industry.
– Nearly 37% of contractors report more than 60% of their project payments to be late.
– A whopping 60% of contractors receive late payments on roughly half of their projects.
– Large enterprises constitute the largest group of late paying parties in a construction project; roughly 60%.
– 44% of the respondents said that their average payments are more than 30 days late.
How Digital Payments Can Facilitate Seamless Transactions
Digital payments follow a simple principle; payments are processed automatically upon the completion of work. Considering a toxic culture of delayed payments in the construction industry, digital payments could bring a significant change in the current financial environment.
Smart Contracts for Automatic Payments
No one could understand the importance of contractor agreements better than construction industries. It only makes sense to introduce digital payment terms and schedule for seamless operations. Smart contracts are programmable snippets of code that contain the terms and schedule of payment, which are automatically released upon the completion of work. Introducing automated digital payments could lower the processing time, facilitate quicker settlements, and maintain a dispute resolution mechanism to handle any issues.
Small Processing Fees Instead of Intermediary Charges
Intermediary charges are the Achilles Heel of every industry, with the construction industry being no exception. Using digital payments for contractor bills could eliminate the need for these intermediaries. Digital payments incur less than 1% processing charges, making payments cheaper, along with providing instant settlements.
Digital payments introduce a culture of frictionless transactions. One of the primary features of digital payments is their instant settlement. Unlike traditional payments, digital transactions can be settled in real-time. Additionally, digital payments follow enterprise-level security standards to avoid any financial leakages or security concerns.
Eredox Business Intelligence Software with Digital Payments
Eredox is a business intelligence (SaaS) software that also facilitates digital payments for capital projects. We partner with cutting-edge software companies to provide a seamless payment experience to our clients. Our digital payment suite combines well with existing ERP solutions, backed by our 24×7 tech support. If you’re a construction company, contractor, or sub-contractor looking to redefine your payment infrastructure, Eredox will help you transition to the world of digital money.