25th August, 2020
The trades and construction sector needs to have checks and balances in place to make sure cash flow doesn’t slip, writes Nina Hendy.
The trades and construction sector is gearing up for an economic boost in the second half of this year as the Government’s HomeBuilder stimulus and other targeted initiatives begin to take effect.
The financial shot in the arm from the Federal Government is designed to help the country build its way out of the economic woes left behind by the coronavirus pandemic.
The measures aim to ease a predicted downturn in construction demand and will give the construction sector support in an effort to boost demand and keep builders employed.
The news comes after fears of a major building slowdown caused by the pandemic, with industry bodies warning that the number of building projects in the pipeline could plummet in the second half of this year.
To help business owners operating in the trades and construction sector make the most of the remainder of 2020, the following article details the major steps you can take to take charge of your revenue.
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The key to making the most of the boost (and any ongoing activity in the market) will be for those in the construction sector to manage payments from their clients carefully.
This industry is often plagued with delayed payments or payment upon completion of the work, which can quickly cause a financial bottleneck within a trades and construction business, regardless of its size.
RESOURCE: Your guide to cash flow management
Federal Government reviews on payment security have revealed that 72 percent of subcontractors in the architectural, engineering and construction space received late payments on 40 percent of the invoices they sent out.
On top of being delayed, 44 percent of respondents reported that, on average, their invoices remain unpaid for more than 30 days after the agreed upon due date.
Debt recovery expert Anthony Igra said late payments put the construction industry in the hotseat.
Igra is the owner of Contractors Debt Recovery, which specialises in helping commercial building contractors recover money they’re owed, mostly by developers and building construction companies. Igra and his team recover around $6 million of unpaid work per year.
“Delayed payments or non-payments are rife within the building industry, often because of ‘leakage’ whereby money for project ‘A’ gets paid to project ‘B’ so that the money in the contractual chain is literally bled out,” said Igra.
“It’s then frequently used by head contractors to pay other debts and unfortunately sometimes for their own personal use.
“I’ve seen cases where it’s been spent on a new speed boat or overseas holiday, leaving no money to pay for the work done by the parties down the contractual chain.
With the financial uncertainty caused by the coronavirus pandemic, anyone working in the construction sector will need to make sure they recover unpaid money to help them stay afloat, he said.
Making sure you understand the legislation in place in the state you operate your business in is an important first step.
For example, in Victoria there is The Building and Construction Industry Security of Payment Act 2002 (known as the SOP Act), which helps to ensure that any person who carries out construction work or supplies related goods and services under a construction contract gets paid.
The Act is designed to provide a fast way to recover payments under a contract without the need for layers to get involved.
While there isn’t a document that will ensure that clients pay on time, a well-crafted contract that clearly breaks down the payment milestones can go a long way toward ensuring payments are regular.
A contract should be put in place for each and every job.
The contract should step clients through the scope of work to be completed, the payment schedule and legal repercussions of late payments.
Some operators may provide a discount for early payment and include penalties for late payment in the contract.
If payments aren’t forthcoming, stopping work until payment is made can be an effective approach. Also, keeping a good rapport with clients and following up on late payments is crucial.
RESOURCE: Your complete guide to invoicing
Using digital invoicing and payment solutions that enable you to keep track of how much your business is owed and when payments are due is a game-changer for the construction sector.
Without automation, invoicing and waiting for payment approvals can take up a huge amount of time, and it’s easy for overdue payments to be missed.
Taking payments any way the customer wants also helps to get paid faster. For example, MYOB offers invoice automation and secure payments so that customers can pay direct through invoices via AMEX, Visa, MasterCard and BPAY. Plus, you’ll get notified the second they’ve paid you.
Automating payment reminders within your MYOB software will also help you get paid faster, while taking the pressure of additional admin off you and your team.
Build a better trades and construction business with the right accounting software. MYOB Essentials will help you create invoices, track payments and manage your spending – on mobile and tablet. Start your FREE trial today.