Shrinking margins have claimed some big scalps in the construction industry but builders are now turning to proptech platforms to help de-risk the industry and manage cash flow.
The construction sector consistently tops CreditorWatch’s 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.
Speaking to The Urban Developer earlier this year, Slattery managing director Sarah Slattery said builders should be undertaking detailed financial checks to ensure their supply chain was solvent.
“Nobody should have to wait 60 to 120 days to be paid, yet we accept that as the status quo in the industry,” Slattery said.
“Cash is king, and in these difficult times people should be paid as soon as possible for works completed to maintain liquidity.”
MainBrace chief financial officer Jaco Steyn says he has turned to proptech to help streamline payments and provide assurance to sub-contractors 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.”
There are almost 400 proptech businesses in Australia and while the niche sector is not as mature as the US or UK it is gathering momentum in the property sector. Almost two-thirds of those platforms are business-to-business solutions. And more big development firms are pouring money into the sector, including Charter Hall and Stockland who have set up accelerator programs.
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 the average discount that subcontractors offer in return for early payment is between 1-2 per cent, which gives them “more confidence and control over how they manage their business”. He 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.
Saxelby says they are on the cusp of breaking into “mature markets” internationally, with work on the expansion program well under way.
EarlyTrade took out The Urban Developer’s award for Best New PropTech for 2022 this month.
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