Payment timeframes in construction have blown out in the latest sign of stress in the building sector and the economy, the latest data says.

Releasing its latest report, commercial credit reporting bureau CreditorWatch said that throughout the month of January, the average business in construction paid their bills 44 days late.

This is up from 35 days in December and 30 days in January last year.

Further, payment timeframes are being extended across the broader economy.

Of the 18 sectors on which Creditor Watch reported, eleven have seen a deterioration in payment timeframes over the past year whilst only five sectors have seen an improvement in payment times and two have seen no change.

CreditorWatch Senior Economist Harley Dale said the increase in payment times is a consequence of COVID-19 and the disruption which this caused to business operations.

Speaking of the construction sector, Dale says fortunes are mixed as the residential sector has been bolstered by HomeBuilder but commercial construction is experiencing softer conditions whilst engineering construction ‘needs a stronger destination economy than what we currently have’.

Going forward, Dale says a risk for the economy involves a potential rise in corporate insolvencies once COVID support mechanisms are wound back.

As things stand, insolvencies throughout 2020 were unusually low.

Across all industries the number of companies for which entered external administration fell from 8,324 in 2019 to 4,943 last year.

In construction, external administration appointments fell from 1,700 in 2019 to 925 last year.

This, however, is misleading due to the number of businesses which have relied on government support from programs such as JobKeeper.

Further insolvencies have been avoided through temporary safe harbour provisions which have provided company directors with relief from personal liability which may arise as a result of companies having traded whilst insolvent.

These measures, however, have a finite life.

JobKeeper will end in March, whilst the safe harbour provisions ended in December.

According to Dale, this raises questions about what happens next.

“In 2020, I think everything that was thrown at the COVID related challenges in a way that was systematic and appropriate and worked in the way that it should have,” Dale said.

“In 2021, we have a situation where all of those things at some point need to come to an end. Then it’s all about what happens after that.

“That’s the uncertainty for the Australian economy in 2021. A lot of these household businesses have a family mortgage. It’s all about exactly what happens as that government support drops out?

“Hopefully, this will turn out pretty well, but you wouldn’t like it to turn uglier than people are expecting right now.”

Despite this, Dale urges businesses to remain proactive.

“I think the important thing in 2021 is recognising that if you are still part of a viable business, we are in a situation where consumers are cashed up, the labour market has a lot of recovery left in it but is certainly not as bad as people feared a number of months ago – there are a lot of positives out there,” he said.

“It is going about attracting and looking after those customers that do something for a business livelihood and having the confidence in and around that.

“Our biggest risk is that we get carried away (about the current difficult situation). It’s not that we shouldn’t be disappointed about it, but we don’t want to all get in a situation where we get down and lacking in confidence and lacking in ability to think about inventive ways to do things.\

“As a country relative to the entire world, Australia is doing very well. We’ve got to recognise that, harness that and continue to produce good services that derive income and employment.”