There’s no two ways about it: non-payment of contractors remains a key barrier to a healthy construction industry. In a recent construction industry survey to gauge opinion on some of the risks and challenges facing the region, participants offered their views on subjects such as financial risks, performance bonds, VAT, environment, health and safety, and labour welfare.
When asked about the biggest financial risk facing the UAE’s construction companies, more than 60 per cent of respondents highlighted the issue of late payments leading to cash flow problems as one of the most significant challenges. A further 14 per cent cited eroding margins due to tough competition as a pertinent financial risk.
MENA construction companies have endured a difficult few years facing near-insurmountable problems because of late or slow payment by their clients in the public and private sectors. This situation is partially to blame for the string of poor results and business rescues we have seen among several construction groups.
In the construction industry, a late payment to one supplier or by one customer can have a ripple effect throughout the value chain. Given how thin margins are in the industry, variances in cost and scheduling can compromise cash flow and profitability, plus have a major impact on the viability of a project.
Therefore, it is imperative for construction contractors to use technology to ensure better real-time visibility into their businesses and projects. An integrated costing, project control and enterprise accounting suite designed for the industry can help them manage costs and risks across the entire project lifecycle. Such solutions make it possible to accurately compare actual costs with anticipated costs, allowing for timely management interventions.
Tried and tested solutions enable construction companies to stay on top of their procurement requirements, payments to sub-contractors, and more. When paired with a robust forecasting solution, such solutions give construction companies a full analytical breakdown of every project based on past performance and the potential impact of future events.
With the right level of insight, the company can understand how project financing, payment terms and late payments may affect the profitability of a project. This gives it the ability to make informed business decisions about the projects it takes on, as well as the costs it should quote on, to ensure profitability.
We are hopeful the environment for the construction industry is improving, but late payment is likely to remain a challenge for major groups and smaller sub-contractors alike. Equipped with the
right technology solutions, however, construction companies can better manage the risks attached to long payment cycles, protecting their margins. In addition, implementing the right technology today will give a construction company the competitive edge it needs to endure challenging times and thrive during prosperous times.
Big Projects September 2019 issue