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Debt collection challenges faced by the construction industry

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Struggling to get paid as a construction worker?

You’re not alone – thousands of people within the industry are experiencing the same thing.

Why debt collection is hard to manage in the construction industry

It’s a tale as old as time for those working in construction. With the proportion of payment arrears of 60 days or more sitting at almost 12 per cent, overdue payments are unfortunately quite common in the construction industry. So common, in fact, that it takes longer to get paid in the construction business than it does in any other industry,

But why is this such a big problem within the industry?

The first factor has to do with the complicated way payment systems are managed by construction businesses. From the top of the chain, property owners, general contractors and developers have great difficulty controlling payments and managing their risk of double payments. This leaves their contractors and subcontractors waiting on overdue payments, and struggling to pay their own sub-subcontractors and suppliers further down the chain.

The construction industry is also unique in its heavy reliance on credit to receive work and materials. Many construction companies both extend credit to other parties on specific projects and provide labour or materials on credit themselves, on contracts with thin margins and upfront cash needs.

As a result, it’s not unusual for construction companies to wait until payment is received from the party above to make payment, leaving behind a backlog of debt collections. And in the worst-case (but not uncommon) scenario where one party is unable to pay their dues and becomes insolvent, these unpaid invoices become bad debt that gets thrust on the main company to deal with.

The bottom line is that finding a streamlined payment method for construction companies is extremely difficult. But with the right tools, you can help improve communication among all levels of the supply chain and ensure your construction company pays workers faster.

Debt collection tips and solutions

The first step to working towards a better and faster payment system for your company is to get organised. When your customers are late or are unable to pay you, it can be because they haven’t received any notices or sufficient reminders about their upcoming payments.

To prevent this from happening, stay on top of your paperwork by lodging your invoices on time. While it can be a daunting task figuring out which invoices go to the right people, you can make it easier on yourself by automating the process using accounting software. The CreditorWatch platform integrates seamlessly with Xero and MYOB to streamline your accounts receivables process and highlights risky debtors directly in your accounting dashboard.

You can likewise further protect your company by registering your goods or services sold on credit on the PPSR (Personal Property Securities Register), which helps businesses manage their credit risk and recover debt in the case a customer becomes insolvent or liquidates.

Registering on the PPSR is also essential for construction companies, as an industry that typically supplies goods and services to other businesses on credit terms. As PPSR can be hard to navigate, tools like PPSRLogic simplify the way you manage and renew registrations on the system and allow you to make the most of this essential service.

Lastly, uncomplicate the process of managing debt collections by automating your debt recovery process. Debt collection tools, including specific letter templates, that are available at CreditorWatch help you get paid faster, reducing your need to chase up late and non-paying customers.

By having these tools which can help identify high-risk debtors and outline which debt collections to prioritise while maintaining good customer relationships, you’ll be able to improve professional communication at all levels of your supply chain and break the construction company dilemma of overdue payments!

To help you get paid on time and keep bad debt off your books for good, CreditorWatch is here to provide you with the services you need. Contact us to get started today!