New research from leading construction application for payment management software provider Payapps provides fresh insights into the competitive advantage technology presents to construction businesses and its potential to reduce the rate of construction sector insolvencies in a challenging economy
Payapps is trusted by main contractors and subcontractors across the globe to simplify and standardise the submission and certification of applications for payment. The company is driven by its goal to improve payment processes across the industry.
Recent years have seen the construction industry impacted by economic stresses, such as rapid inflation and rising interest rates, with many companies suffering to the point of collapse. In the interest of resolving these widespread challenges faced by the industry, Payapps has conducted research into the significance of digital adoption in business resilience.
Payapps has released its findings in the Resilience in Construction Research Report for 2023. The report reveals that enhanced digital adoption could significantly reduce the rate of construction sector insolvencies by improving cash flow, reducing late payments and offering greater resilience and overall better business health in spite of economic setbacks.
A turbulent economic landscape
According to the UK Government’s Insolvency Service, 4,165 construction firms became insolvent during the first quarter of 2023, equating to 19% of all cases where the industry of an insolvent firm is known. This official data suggests that construction is suffering from insolvencies more than any other sector.
It is a challenging time for the sector, with the problems that originated in the pandemic being exacerbated by current economic challenges, as many struggle to repay loans and contend with increased inflation, greater overhead costs and the rising price of materials.
The construction businesses surveyed by Payapps, including main contractors and subcontractors, expect the next 12 months to continue to be challenging in a range of areas. With this in mind, Payapps looked to find ways of building resilience in the industry.
Late payments remain a concern for the construction industry
The report finds that one of the foremost challenges contributing to the increased rate of construction sector insolvencies is potentially late or delayed payments for work done.
One-fifth (20%) of construction companies, including main contractors and subcontractors, say their finances were heavily impacted by late or delayed payments in the last year.
Additionally, 23% of construction companies have had more than 50% of their payments in the last year either late or delayed.
The digitally ahead are also more likely to use software to automate applications for payment (38%), compared to the digitally behind (26%), highlighting a large opportunity across the industry for increased digital tools to automate applications for payment.
Resilience is key to the health of the construction industry
Having a strong financial foundation is key to a sustainable and resilient construction business. Financial strength ensures that companies can weather storms and persist in the cyclical nature of the construction industry. Modern businesses should consider that technology plays a critical role in providing real-time information about business cash flow, including what is owed and operational expenditures.
According to Brett Stephenson, chief revenue officer at Payapps, digitally advanced companies experience better cash flow management as technology automates various tasks and processes, reducing manual efforts and streamlining workflows.
Stephenson commented: “Our report shows that companies using well-integrated construction technology have faster payment cycles and better cash flow than those without. Nearly three times as many digitally ahead businesses say that technology has helped their company achieve better financial management compared to those who are digitally behind.
“This is critical in the current market conditions, where many construction companies struggle to stay afloat. By embracing digital technologies, construction companies can make better data-driven decisions for their business, for greater financial stability and improved cash flow.”
Payapps’ research considered performance on a range of key indicators, and the digitally ahead rated themselves as excellent for:
- Paying suppliers on time (50%).
- Submitting timely and compliant applications for payment (52%).
- Getting paid on time (50%).
- Managing cashflow (46%).
Across all these indicators, the digitally ahead businesses outperform digitally behind peers. Managing cashflow, particularly in volatile market conditions, is vital to building a sustainable business.
Visibility is key to optimising cash flow
Stephenson also highlighted how Payapps is helping thousands of construction companies improve cash flow by integrating with various construction and accounting software to provide real-time visibility into project progress, expenses and financial data.
“This visibility empowers companies to identify potential issues early, make informed decisions and take proactive measures to optimise cash flow, ensuring financial stability and resilience in the ever-changing construction environment,” Stephenson stated.
“By automating applications for payment and approvals, Payapps accelerates payment cycles, enabling companies to receive funds faster and potentially maintain a healthy cash flow.”
Digitally ahead businesses become resilient through technology investment, use and integration
The Resilience in Construction Research Report for 2023 also shows that digital adoption does not only offer financial management capabilities – businesses that are ahead of the curve in terms of technology investment, use, and integration unlock broader resilience advantages, including solid relationships, better efficiency and engaged talent.
For example, the research highlighted that digitally advanced businesses have excellent relationships and reputations with critical stakeholders and are better equipped to attract and retain talent.
- More than twice as many digitally ahead businesses (37%) say technology is a critical factor in improving their relationship with their supply chain, compared to those who are digitally behind (16%).
- Digitally ahead, businesses are almost twice as likely to see productivity boosts as those who are digitally behind.
- Almost twice as many digitally ahead businesses (47%) are looking to attract and retain talent by investing in technology to improve business processes compared to those who are digitally behind.
Click the link to access the UK&I Resilience In Construction Research Report for 2023. The global survey conducted by ACA Research on behalf of Payapps included 500 financial decision-makers from commercial construction companies in the United Kingdom, Ireland, Australia and New Zealand, encompassing main contractors and subcontractors.
Chloe Leigh
Head of Marketing UK&I
Payapps
Tel: 0191 651 1765
*Please be aware that this is a commercial profile.
