Shrinking margins have claimed some big scalps in the construction industry, but builders are now turning to contech platforms, such as Earlytrade, to help de-risk the industry and manage cash flow.
The construction sector consistently tops data on late payments, with about one in 10 builders more than 60 days in arrears on their payment to suppliers.
And construction sector insolvencies are now on the rise after a number of high-profile collapses including Probuild, which had $5-billion worth of projects across the country, and Gold Coast-based Condev Construction, which had a $1-billion construction pipeline.
The Australian Constructors’ Association believes the hyper-escalation of construction costs, in some cases up to 70 per cent in 12 months, for contractors locked into fixed-price contracts is emerging as the biggest challenge in the industry.
Construction is Australia’s third-largest industry, employing about 10 per cent of Australian workers and directly accounts for 8 per cent of Australia’s gross domestic product. It also has the highest incidence of insolvency of any other sector, a trend that could escalate with ongoing cash rate hikes.
Mainbrace chief financial officer Jaco Steyn says he has turned to contech to help streamline payments and provide assurance to subcontractors who can apply to receive early payment.
The Earlytrade platform allows subcontractors to request payment sooner than the mandated 20 days, in return for a small discount.
Steyn says it’s a game-changer for managing cash flow and supply chains for the specialist retail builder, which signed up with the platform about six months ago.
“It’s a very elegant solution to issues in the construction supply chain,” he says.
“In the construction industry there’s so much inefficiency within the payment process. We were looking for ways to make it easier for our subcontractors, and to provide more transparency for them, and using this technology streamlines it.
“It provides better and more timely information to our subbies, they can get a lot more visibility on payments that are due and what’s in the pipeline, which helps them smooth their expenses.”
The platform also allows subcontractors to look at when payments are due across different jobs.
“It’s a win-win for us too because if we have excess cash for a week or two we can then make that available to be used fairly within our subcontractor portfolio. Everyone can have access to it,” he says.
“If subcontractors want or need to move that [payment] forward a couple of days obviously there’s a cost to that, a discount, which they decide on. But they have the opportunity to do that.”
Earlytrade chief executive Guy Saxelby says the take-up rate on the platform has been phenomenal over the past 12 months. The shutdown of construction sites amid a Covid-19 wave in New South Wales last year spawned Earlytrade’s proptech evolution.
“We had a 500 per cent increase in early payments in just two months last year,” Saxelby says.
“When the NSW State Government shut down construction sites (during a Covid-19 outbreak in 2021) we had an incredible amount of activity … because contractors had no certainty around if the industry would be operational or not, so they needed to get payments in early, they needed the certainty.
“It’s allowing the smaller guy to control when they have the liquidity. It helps to smooth out the gaps that would otherwise put them further into risk.”
About 80,000 suppliers and contractors are using the platform, which enabled about $912 million in early payments last year.
Saxelby says it is also engendering trust between builders and subcontractors through a more transparent payment system, which was helping builders hold on to labour during the skills shortages.