Slow Payments in Construction: Industry Impact, Case Studies, and the BuilderPay Solution
The Slow Payment Crisis in Construction
Cash flow is the lifeblood of construction, yet slow payment cycles have become a chronic industry problem. Studies show that 100% of U.S. construction firms experience late payments, making construction one of the most payment-challenged sectors (Late Payments Wreak Havoc on Businesses of All Industries). In fact, the average days sales outstanding (DSO) in construction is around 94 days, meaning contractors wait over three months to get paid for work – double what is needed for healthy cash flow (Construction Industry Suffering From Payment Delays) (Construction industry payment trends. | Commerce Bank).
An industry report highlighted by The Construction Broadsheet revealed that slow payers will cost the U.S. construction industry over $270 billion in a single year (Delayed Payments Added $273 Billion to Construction Bids in 2023: A Wake-Up Call for Real Estate Developers and Construction Lenders | Business Wire). This amounts to roughly 14% of total construction costs once you factor in ripple effects like financing costs and productivity losses (Construction Industry Suffering From Payment Delays). Such delays aren’t just an inconvenience; they undermine project budgets, timelines, and the financial stability of contractors at every level.
Why are slow payments so detrimental?
Construction companies must spend cash upfront on labor and materials long before incoming payments arrive. One report noted that 82% of contractors now wait over 30 days for payment (up from 49% two years prior) (2024 Construction Payments Report | Delayed Payments).
During that gap, contractors still have to meet weekly payroll and pay suppliers, often relying on credit lines or personal funds. It’s estimated that delayed payments increased construction costs by $273 billion in 2023 due to added interest, higher bids, and lost productivity (Construction Industry Suffering From Payment Delays). Contractors incur “carrying costs” – expenses like loan interest and inflation on materials – while awaiting payment (2024 Construction Payments Report | Delayed Payments). Every extra month waiting erodes profit margins and can turn a normally profitable job into a break-even venture.
72%
Share of subcontractors reporting payment delays of more than 30 days in 2023
49%
Share of subcontractors reporting payment delays of more than 30 days in 2022
56%
Hours per month general contractors spend managing payments to subcontractors and vendors, up 27% year over year
Case Studies: Impact of Slow Payments on Construction Firms
The toll of slow payments is evident in real-world examples across the United States. Below are a few cases and statistics that illustrate how delayed payments create financial distress for construction companies:
Subcontractor Insolvency: When cash runs dry due to late payments, subcontractors can fail even if the project itself is profitable. Industry surveys have found that some subcontractors have gone out of business while waiting to be paid for completed work (Old-School Billing Is Creating a Construction Industry Cash Crunch). James Sander of Larkin Hoffman notes that running out of cash for payroll and must-pay bills is “a major contributor to subcontractor failures” that can cascade through a project (Slow Paying Customers Can Bring a Contractor Down | Open Legal Blog Archive). For small trade contractors, a single large payment delay can be an existential threat.
Extended Payment Cycles: Individual contractors report extraordinarily long waits. For example, W. B. Guimarin & Co., a mechanical contractor in South Carolina, saw its client payments stretching out nearly 90 days late during a market upswing (Subcontractors Report Longer Payment Delays | 2016-03-04 | ENR | Engineering News-Record). “It’s terrible,” said the CEO, as such delays forced the company to carry months of costs with its own funds.
Similarly, a New York contractor, KSW Mechanical Services, reported that many owners “stretch payments as far as they can until the sub screams or threatens,” which chokes the cash flow for both the general contractor and its subs down the chain (Slow Payment Is Sapping Contractors’ Strength | 2009-06-24 | ENR | Engineering News-Record). These cases show how slow-pay practices – sometimes even deliberate – put contractors in financial vise grips.
Work Stoppages and Project Risk: A recent survey found 57% of general contractors and 78% of subcontractors experienced work delays or stoppages in the past year due to payment delays to crews (Construction Industry Suffering From Payment Delays). In practice, this means contractors had to halt work because cash wasn’t flowing to pay workers or buy materials. Projects can spiral into trouble when one contractor’s cash crunch causes schedule slips.
In some instances, general contractors have had to lay off staff or defer paying their own vendors, spreading the distress. One report noted a 141% increase in mechanics’ liens filed by subcontractors in a single year, as subs turned to legal remedies to secure payment for work done (Delayed Payments Added $273 Billion to Construction Bids in 2023: A Wake-Up Call for Real Estate Developers and Construction Lenders | Business Wire). Liens and legal disputes are clear signs of how strained payment practices are undermining project health.
Financial Strain and Bankruptcy Risks: The financial impact of slow payments shows up on balance sheets. With 71% of subcontractors reporting they frequently face delayed payments (Old-School Billing Is Creating a Construction Industry Cash Crunch), many firms take on debt to bridge the gap. 77% of subcontractors have had to cover material and supply bills out-of-pocket (often via personal credit cards or loans) while awaiting overdue invoices (Old-School Billing Is Creating a Construction Industry Cash Crunch). This burden has pushed some owners to the brink – according to Rabbet’s 2024 Construction Payments Report, a number of contractors resorted to tapping personal savings and even retirement funds just to stay afloat amid ongoing payment lags (2024 Construction Payments Report | Delayed Payments).
In the worst cases, otherwise viable construction businesses have been forced into insolvency or bankruptcy purely due to cash flow timing issues, not lack of work. It’s telling that three out of four subcontractors raise their bid prices when dealing with a GC or developer known for slow payments (2024 Construction Payments Report | Delayed Payments). Owners end up paying a premium – up to 10% more on project bids – to offset the risk of delayed payments (Construction industry payment trends. | Commerce Bank). This creates a lose-lose scenario of inflated costs for owners and high financial stress for contractors.
These examples underscore an industry-wide reality: late payments undermine construction from every angle. Whether it’s a small family-owned subcontractor or a large general contractor, insufficient cash inflow can lead to halted projects, unpaid workers, increased debt, and even business collapse. The cumulative effect is massive – beyond the billions in added costs, slow payments erode trust and efficiency in an industry built on tight timelines and collaboration.
Financial Impact of Delayed Payments
Slow payments don’t just hurt individual firms; they ripple through the entire construction ecosystem with significant financial consequences:
Rising Project Costs: When contractors anticipate slow payments, they pad their bids to protect themselves. As noted, 75% of subcontractors increase bid prices if they expect payment delays (2024 Construction Payments Report | Delayed Payments). Some contractors report adding as much as 10% to project costs to compensate for the financing costs and risk of late payments (Construction industry payment trends. | Commerce Bank). In aggregate, this has driven up the cost of construction – one analysis pegged the added cost at 14% of total construction spending (Construction Industry Suffering From Payment Delays).
In 2023 alone, payment delays tacked on an estimated $273 billion to U.S. construction project costs (Construction Industry Suffering from Payment Delays). This figure includes interest on borrowed money, administrative overhead for chasing payments, and cost inflation from slowed projects.
Cash Flow Crunch and Borrowing Costs: Construction firms often must borrow to cover expenses while outstanding invoices linger. This leads to more interest expense. Delayed payments force 98% of general contractors to incur financing penalties or fees to float cash (whether via bank loans, credit lines, or supplier financing) (Download 2024 Construction Payments Report | Rabbet).
Even if a contractor avoids formal loans, using personal funds or diverting capital has an opportunity cost. Over time, these financing costs pile up and eat into already thin profit margins. The longer the wait for payment, the more a company pays in interest and loses in potential investment. It’s a hidden “tax” on doing business that can total millions for larger contractors.
Strained Supply Chains: When a general contractor is paid slowly, they in turn pay their subcontractors and suppliers slowly, and so on. This domino effect can strain supplier relationships and lead vendors to tighten terms. According to industry surveys, by 2024 82% of contractors reported waiting over 30 days for payment, and many suppliers responded by shortening their credit terms or requiring upfront payments (2024 Construction Payments Report | Delayed Payments).
Thus, slow payments can actually constrict the credit available to contractors – exactly when they need it most. In extreme cases, suppliers may refuse to deliver critical materials if previous bills haven’t been paid, causing project delays (Slow Paying Customers Can Bring a Contractor Down | Open Legal Blog Archive).
Lost Productivity and Opportunities: Managing late payments is itself a costly endeavor. General contractors spend an average of 56 hours per month on payment administration (e.g. tracking invoices, reminding payers, resolving billing issues) – time that could be spent on productive work (Construction Industry Suffering From Payment Delays). This administrative drag is essentially wasted overhead.
Moreover, firms tied up financially on one job might have to turn down new projects because their capital is still tied in unpaid invoices (2024 Construction Payments Report | Delayed Payments). Slow cash turnover limits a contractor’s capacity to take on more work, directly stunting business growth. In essence, payment delays rob firms of future revenue and profit opportunities.
Risk Premiums and Litigation: When payment issues escalate, legal actions often follow. We’ve seen a sharp uptick in mechanics’ lien filings (more than doubling in one year) as subcontractors move to secure payment (Delayed Payments Added $273 Billion to Construction Bids in 2023: A Wake-Up Call for Real Estate Developers and Construction Lenders | Business Wire). While liens and lawsuits may eventually get a contractor paid, they come with legal costs and damaged business relationships.
Additionally, insurance and bonding costs can rise if a contractor develops a reputation for payment disputes on their projects. All these factors mean slow payments inject more risk (and cost) into construction, leading cautious firms to charge more or avoid certain clients, reducing competition.
In summary, slow payments create a vicious cycle: they increase costs, reduce cash flow, and heighten risk, which then feeds back into higher prices and more project instability. It’s an industry-wide challenge that calls for systemic changes in how payments are managed.
How BuilderPay’s Solution Addresses These Challenges
BuilderPay is a construction-focused payment platform designed to break the slow payment cycle through automated payments, secure funding, lien management, and streamlined workflows. By tackling the root causes of payment delays, BuilderPay can significantly improve cash flow and reduce financial risk for all parties on a project. Here’s how each key feature of BuilderPay aligns with solving the industry’s pain points:
Automated Digital Payments
Problem: The construction industry still relies heavily on antiquated, manual payment processes – paper checks, emailed invoices, and back-and-forth approvals – which introduce delays and errors. Nearly 69% of construction companies still use paper checks for B2B transactions (Old-School Billing Is Creating a Construction Industry Cash Crunch). Mail transit times, manual sign-offs, and batch processing of payments can stretch a simple invoice settlement into weeks. This contributes directly to the long DSO (often 90+ days) that contractors endure (Construction industry payment trends. | Commerce Bank). Manual processes also mean contractors spend dozens of hours each month chasing payments or updating spreadsheets (Construction Industry Suffering From Payment Delays).
BuilderPay’s Solution: BuilderPay automates the entire payment cycle. Contractors and suppliers submit pay applications or invoices through a digital platform, and approvals are routed electronically in real-time. Once an invoice is approved, BuilderPay triggers immediate payment disbursements (via ACH or other electronic methods) on scheduled due dates – no more waiting for a check to be cut and mailed. This automation ensures that payments occur promptly (often within days) of approval, drastically shortening the payment cycle from the industry’s 80-90 day norm. By using digital rails, funds can move quickly and securely directly to the intended party. The impact is better cash flow and less time spent on administrative follow-up. In fact, embracing digital payments has been shown to accelerate contractor payments; 86% of general contractors reported faster payments when owners used digital pay methods rather than paper-based billing (Old-School Billing Is Creating a Construction Industry Cash Crunch). By institutionalizing fast, predictable payments, BuilderPay helps contractors avoid the cash flow crunch and financing costs associated with slow, erratic inflows.
Escrow-Backed Funds for Projects
Problem: A common cause of non-payment or slow pay in construction is the owner running out of money or disputing funding mid-project. Contractors often sign up for a job only to later discover the developer didn’t have solid financing, leading to halted payments. In the last year, 34% of general contractors had contracts fall through because developers failed to secure project financing (Delayed Payments Added $273 Billion to Construction Bids in 2023: A Wake-Up Call for Real Estate Developers and Construction Lenders | Business Wire). Even on active projects, many owners hold onto cash as long as possible (“stretching payments”) to protect their own finances (Slow Payment Is Sapping Contractors’ Strength | 2009-06-24 | ENR | Engineering News-Record). This leaves contractors carrying all the risk. Without assurance that funds are available, a contractor must either front the costs (hoping to be paid eventually) or slow their work. The uncertainty can be devastating if an owner becomes insolvent – unpaid contractors may end up in court or bankruptcy proceedings to recover dues.
BuilderPay’s Solution: BuilderPay employs an escrow-backed payment model, meaning project funds are secured upfront in a dedicated escrow account or trust. When a construction project begins, the owner/developer places the budgeted funds (or a significant portion, like the amount for each phase) into a neutral escrow managed through the platform. Each pay cycle, the due amounts are drawn from this escrow and released to contractors and subs upon approval and compliance checks. This guarantees that the money to pay for work in progress is always available and earmarked for that purpose. For contractors, this is a game-changer: it virtually eliminates the risk of not getting paid due to owner default or budget shortfalls, since the funds are already set aside. It also discourages owners from arbitrarily delaying payment, because the money is not in their operating account earning interest – it’s in escrow specifically to pay project bills. By ensuring payment security, BuilderPay’s escrow feature gives contractors confidence to proceed with work, invest in needed resources, and even take on new projects without fear of a cash crunch. This could have prevented scenarios where projects stalled or contracts “fell out” from lack of financing (Delayed Payments Added $273 Billion to Construction Bids in 2023: A Wake-Up Call for Real Estate Developers and Construction Lenders | Business Wire), as the funds would have been verified and locked in at project start. Overall, escrow-backed funds de-risk the payment chain, which in turn should reduce the need for protective bid markups and liens.
Lien Release and Compliance Verification
Problem: A delicate dance in construction payment is the exchange of funds for lien waivers. Owners and GCs want assurance that once they pay, subcontractors or suppliers won’t slap a mechanics’ lien on the property. Conversely, subcontractors fear signing away lien rights without proof of payment in hand. Traditionally this leads to mistrust and standoffs – some GCs withhold payment until a signed lien waiver is received, while subs hesitate to send waivers before the check clears (7 common payment issues in construction and how to combat them | Construction Dive). In worst cases, payments get delayed simply due to paperwork timing and fear of liens. Additionally, missing compliance documents (like updated insurance or bond info) can cause GCs to freeze payments to a sub, often without timely communication, further delaying cash that the sub desperately needs (7 common payment issues in construction and how to combat them | Construction Dive). These manual checks create friction and often payment is delayed until everything is sorted, which can be days or weeks.
BuilderPay’s Solution: BuilderPay streamlines lien release verification and compliance as part of the payment workflow. The platform can require digital lien waivers from subcontractors and suppliers simultaneously with payment. For example, when a payment is scheduled, BuilderPay can prompt the subcontractor to e-sign a lien waiver; once signed, the payment is automatically released from escrow to that subcontractor. This simultaneous exchange removes the trust gap – subs know they will be paid as soon as they sign, and owners/GCs know that lien rights are waived upon that payment. No more mailing waivers back and forth or meeting in a parking lot to swap checks for signatures (7 common payment issues in construction and how to combat them | Construction Dive). BuilderPay also tracks compliance documents (like insurance certificates, licenses, and bond status) for each payee. If a sub’s insurance has expired, the system can flag it before the payment deadline, allowing the issue to be fixed without derailing the pay cycle. By verifying that all lien waivers and compliance documents are in place, BuilderPay prevents the administrative hiccups that lead to withheld payments. This not only speeds up the release of funds but also protects owners and GCs from lien exposure, creating a win-win scenario. In effect, BuilderPay’s automated lien release process would reduce the incidence of liens (addressing the 141% spike in lien filings (Delayed Payments Added $273 Billion to Construction Bids in 2023: A Wake-Up Call for Real Estate Developers and Construction Lenders | Business Wire)) and build more trust into the payment chain, since everyone’s rights are transparently managed.
Seamless Financial Workflows and Transparency
Problem: The fragmentation of construction finance – with separate systems for accounting, project management, and banking – often means payment information is siloed. A lack of transparency leads to disputes (“I submitted that invoice two weeks ago!” “We never got your change order request.”). It also makes it hard for contractors to forecast cash flow or for subcontractors to know when they will be paid. Many contractors still spend considerable effort reconciling pay applications, tracking who has been paid what, and manually updating ledgers (Construction Industry Suffering From Payment Delays). This inefficiency not only wastes time but can lead to mistakes that cause payment delays or duplications. Moreover, lower-tier subs and suppliers often have zero visibility into where they stand in the payment queue – they are at the mercy of the tier above them.
BuilderPay’s Solution: BuilderPay provides a unified platform where all stakeholders – owners, general contractors, subcontractors, and even lenders – see the same up-to-date payment status and documentation. It integrates the workflow from invoicing to payment to accounting in one system, eliminating gaps. Subcontractors can log in to see when their invoice was approved and exactly what date payment will be released, giving them certainty and the ability to plan cash flow. Owners can see their cumulative project payout and upcoming obligations in real time. This end-to-end visibility reduces the chance of “lost” invoices or surprise short payments. Automated notifications remind parties of upcoming deadlines (for example, a reminder to submit this month’s invoice or a notice to the owner to fund the escrow), so nothing falls through the cracks. By reducing human error and manual intervention, BuilderPay’s seamless workflow cuts down on the 56+ hours per month of administrative labor and minimizes payment disputes. In short, it brings all the moving parts of construction finance into one transparent, efficient pipeline. The improved communication and clarity can prevent minor issues from snowballing into major payment delays. And with better predictability, contractors don’t need to hoard cash “just in case,” because they trust the system to work as expected.
Aligning BuilderPay with Industry Needs
The features of BuilderPay directly target the root causes of slow and painful payment cycles in construction. By automating processes and securing funds, BuilderPay ensures that cash flows faster and more predictably from project owners down to subcontractors. This improved cash flow means contractors can pay their crews and suppliers on time, avoiding the domino effect of delays and work stoppages. It addresses the very scenario that caused over half of contractors to delay work due to late payments (Construction Industry Suffering From Payment Delays) – if everyone knows payment is coming on schedule, crews stay on the job and projects stay on track.
Moreover, BuilderPay’s approach mitigates risk: escrow-backed payments and lien waivers protect stakeholders from non-payment and legal battles, reducing the need for emergency financing or lien filings. Contractors no longer need to factor in huge risk contingencies into their bids, which can lower project costs for owners over time. In fact, with prompt payment processes, owners and developers can become more attractive to contractors. (Recall that 100% of subcontractors now evaluate a contractor’s payment reputation when bidding (2024 Construction Payments Report | Delayed Payments). Using a system like BuilderPay signals a commitment to timely payment, which could entice more bidders and better prices for projects.)
The financial benefits of such a solution are significant. Faster payments mean lower carrying costs – contractors aren’t paying as much interest on loans or losing early payment discounts. Efficient workflows mean lower administrative overhead and fewer errors (which can each save tens of thousands of dollars annually for a mid-sized firm). Perhaps most importantly, steady cash flow means a contractor can take on more projects safely, fueling growth instead of insolvency. The reduction in stress and conflict is hard to quantify but invaluable – instead of fighting over payments, teams can focus on delivering quality work.
Conclusion
In conclusion, the construction industry’s slow payment woes have caused real harm – from billions in added costs to companies going under due to cash starvation. The case studies and data make it clear that improving payment speed and certainty is not just about convenience, but about stabilizing the industry’s financial foundation. BuilderPay’s platform offers a targeted remedy: by using automated, escrow-funded payments with built-in lien release and workflow integration, it aligns payments with the pace of construction work. This kind of solution can keep projects moving, contractors solvent, and relationships strong. In an industry that literally builds the future, fixing the payment process ensures that construction companies can focus on building – not banking – and foster a healthier, more sustainable business environment for everyone involved.
Sources:
Rabbet Construction Payments Reports (2023–2024) – Business Wire/GlobeNewswire summaries on slow payment costs (Delayed Payments Added $273 Billion to Construction Bids in 2023: A Wake-Up Call for Real Estate Developers and Construction Lenders | Business Wire) (2024 Construction Payments Report | Delayed Payments)
PYMNTS.com – “Rebuilding Payments in Construction” (2024) and related data on payment delays (Construction Industry Suffering From Payment Delays) (Old-School Billing Is Creating a Construction Industry Cash Crunch)
Engineering News-Record (ENR) – Contractor surveys on payment practices (Subcontractors Report Longer Payment Delays | 2016-03-04 | ENR | Engineering News-Record) (Slow Payment Is Sapping Contractors’ Strength | 2009-06-24 | ENR | Engineering News-Record)
Construction Dive and Commerce Bank – Insights on payment issues and digital solutions (7 common payment issues in construction and how to combat them | Construction Dive) (Construction industry payment trends. | Commerce Bank)
Larkin Hoffman blog – “Slow Paying Customers Can Bring a Contractor Down” (2019) (Slow Paying Customers Can Bring a Contractor Down | Open Legal Blog Archive)