Demand and growth is undoubtedly strong across the construction industry coming out of the pandemic.
There has been a steady 10% increase in the number of startup construction businesses each year, many companies have full order books and with government targets for net zero there is a new growing market on the horizon.
However, press coverage of successful construction companies may reflect only the largest players in the market, which have relied on large, watertight contracts and commercial finance, rather than the rest of the market who are often in a long supply chain of sub-contractors. And, it’s fair to say the industry has faced several challenges since 2020.
Some that you may be familiar with:
- Supply chain disruptions causing shortages of materials and increasing prices
- Labour and skills gaps leading to high job vacancies and wage inflation
- And finally, the global increase in input costs from rising energy costs
The impact of these is that the annual increase in construction costs hit nearly 10% by July 2022, and even higher rises are likely to have been experienced since.
“Annual increase in construction costs hit nearly 10% in July 2022”
- Source Statista
Yet, it’s not all doom and gloom - here are three things you can do to better secure and protect your construction business against these challenges.
1. Secure finance lines, tenders and your supply chain with a strong business credit score
The combination of growing businesses but reducing profits is a tricky situation to manage. Cashflow inevitably suffers and supplier terms become even tighter.
Whilst late payments of any kind are challenging for small businesses, construction has one of the lowest ‘days beyond terms’ reported by Experian, at only 12.5 days. This reflects how seriously suppliers take credit control in an industry where business failures are also common.
Construction has one of the lowest ‘days beyond terms’ reported by Experian, at only 12.5 days
So, even if business is booming, if your credit score is looking poor, it could lead to headaches in the long run.
By improving your credit profile you’ll be better able to get longer payment terms and increase the flexibility of time to pay back the customers you owe. Plus, if you require external finance, you’re more likely to be offered facilities with lower interest rates from lenders.
With almost 100 different behavioural and financial factors which affect a company’s credit score, it can be tricky to know where to start. Our recent article here highlights some of the quick tips you can use to improve your credit score.
Or, give your business the best chance and start tracking and monitoring your credit score with Capitalise for Business yourself today.
Free accounts are available plus paid packages to go deeper into your credit profile from less than £1 per day.
Action: Review your business credit profile and be alerted if it changes
2. Monitor credit risk of your customers and subcontractors to prevent late payments or project risks
If your business trades with other businesses, either as customers or suppliers, best practice is to ensure that you know how resilient they are too. This means you can offer customers risk-appropriate credit terms and also protect the stability of your own supply chain.
Almost 25% of existing Capitalise for Business users are construction businesses which demonstrates how seriously these businesses view credit scores.
25% of users on Capitalise for Business tracking credit scores are construction businesses
With Capitalise for Business, you can credit check your suppliers and customers to see if they are financially stable, have a good credit score or have any legal notices on their record. All these can impact whether or not your business gets paid on time.
These data-driven insights can help you better negotiate the terms you offer and spot risks ahead of time that can have knock-on effects on your own supply chain.
Action: Check and monitor your customers credit scores
3. Track your cash flow and spot any need for funding
Even with a strong credit score, and well-performing customers, you’ll know that cash flow in construction can be unpredictable.
If your business often needs a cash injection to keep running smoothly, to say yes to your next big project or hire more equipment that you desperately require - you might spot a need for some funding support.
With Capitalise for Business you can check your funding eligibility for free and apply to 100+ lenders to find your a match.
Action: Sign up to check your eligibility and search for funding
With Capitalise for Business you can:
- Track and understand your Experian powered business credit profile
- Monitor your customers and suppliers to prevent risk
- Check your funding eligibility
Get started for free, or get in touch with us on 020 8038 0985
