Construction and Utility Businesses Use Credit Twice as Much as Hospitality

Slow payments are a perennial problem for the construction industry.

PYMNTS research found that delayed transactions (those in which firms wait more than 90 days to receive payments) represented 12% of construction costs last year. While this circumstance is a challenge for firms of any size, large construction companies may be able to temporarily absorb these costs while pursuing payment and still not have their day-to-day operations affected.

It may be a different matter altogether for small- to medium-sized businesses (SMBs) in the sector, according to the June “Main Street Health Survey Q2 2023: Credit’s Key Role in SMBs’ Plans,” a PYMNTS and Enigma collaboration. The report studied credit use among SMBs in the construction and utility sector.

It found that the sector’s 36% use of business-sourced credit and 33% use of personal credit sources over the previous 12 months was more than double the use of some other sectors, such as hospitality and professional services.

Slow payments and ensuing cash flow shortages led 30% of construction companies to invest in invoice and other software modernizations surrounding their accounts payable (AP) and accounts receivable (AR) systems. FinTechs and other third-party supports have sprung into place to assist construction firms in how to most seamlessly streamline these system-changing efforts.

Part of this stable of support choices includes FinTechs focused on procurement to help these sector businesses bridge the gap in the event of the inevitable cash flow crunch.

In a joint interview with PYMNTS, Kaustubh Pandya, partner at Brick & Mortar Ventures, and Fernando Olloqui, CEO and co-founder at procurement management platform Licify, explained why these platforms are willing to take a chance on construction firms and those related to the sector.

“If businesses have positive working capital, they’re going deliver quicker,” Olloqui said. “They’re going to be focused on the job and not focused on looking for money and fixing the problems and negative externalities that not having cash leads to.”

“The dirty truth in [the construction] industry is that those small contractors are the ones who are financing the large projects,” Pandya added.

Late payments and cash flow holdups are a headache for construction SMBs. However, with some strategic partners and possible modernization efforts, those lean periods don’t necessarily need to snowball into a make-or-break situation.