It won’t come as a surprise to those operating within the construction industry, that their business, its growth and the future comes with a certain level of risk.

It’s an industry often acknowledged as the riskiest in the country. What makes it so is the volatile landscape for businesses. According to our most recent data from the 2019 Q3 Small Business Risk Review – the number of court actions in the construction industry have jumped 40 percent since last quarter, while the number of payment defaults within the industry are up more than 40 percent year-on-year.

Such unpredictability may be accepted by many as standard by some in the industry, there are things that every business within the realm should be undertaking to minimise their exposure and protect themselves from the risks associated with bad debt and insolvency.

Do your due diligence

When it comes down to it, these are the facts:

• A director with a payment default is five times more likely to experience another one
• A director with one failed business is twice as likely to fail again
• A struggling debtor is more likely to default on a smaller supplier than a larger creditor that they rely on for day-to-day operations

Smaller businesses operating within the construction industry are the ones that bear the brunt of non-payment. This is the kind of information they should be arming themselves with at a basic level. Performing thorough due diligence on not only creditors, but debtors and suppliers, will help businesses to understand if and when they are likely to be paid for their services and ensure they are entering into arrangements with their eyes wide open.

Pay attention to the little guys

Within construction, in particular, small businesses are a leading indicator of industry health. Businesses don’t just go into administration; the road to administration is paved with warning signs and, more often than not, it is the smaller sub-contractors who are likely to feel the pain of insolvency or non-payment first.

They are the first to be affected by cash-flow issues and the knock-on effect can be industry-wide.

While something as basic as a credit check can highlight the businesses that are flaking on their smaller partners, it’s also important to have proper onboarding processes in place and run frequent reviews on their creditors and suppliers.

Chase your invoices

Small businesses across the board are struggling to get paid. In fact, the average days to payment across all industries now sits at 57 days – in the construction industry, that figure sits above 90 days. Companies are looking to lengthen their payment terms, and at the same time are pushing debtors to pay faster. Businesses should be taking this time to review their due diligence processes, check their terms and cash flow, and invest in the necessary technology and advice.

When it comes to small businesses and subcontractors, a 90 day payment term can have real-life consequences. It can be the difference between paid or unpaid school fees or daycare fees. So, don’t wait until an invoice is due to start chasing it up. It’s the squeaky wheel that gets the grease and if you don’t ask for it, you won’t get paid.

Unfortunately, all the signs at the moment point to further economic downturn and not just in the construction industry. One default can have a big impact on a small business and so it’s crucial that Australian SMEs take advantage of all avenues of preventative analysis available to them.

If small business owners or operators take one piece of advice into the New Year, make it this: arm yourself with information – know your customer, know their history and have the strategies in place to ensure that you get paid.

By Patrick Coghlan, CEO of Creditorwatch