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The most adverse aftermath of payment delays is the shutting down of companies. This doesn’t happen on account of a single delay in payment; it is usually the ultimate fate an entity has to face due to an absence of cash flow across multiple unpaid invoices and deadlines that have been pushed for years. The practices leading up to such a downfall demotivate good companies from establishing ground in the region, and consequently, opportunities for improving design quality are lost. Referring to a particular incident, a service provider made known,”Three years ago when the market was in recession, small businesses shut down because they couldn’t handle that kind of setback. We also struggled because we couldn’t get our payments in time, and we had to settle with offering discounts.”
Considering the lack of financial instruments focused on the design & construction sector, smaller, newer companies are more concerned about surviving than thriving and doing better work. In such a scenario, their path to become a top player is extremely difficult and could lead to an unbalanced ecosystem in the long run.
Chasing payments results in a loss of resources – both time and personnel. 60% of participants have a dedicated team to chase payments. “The amount of effort and time that goes into collecting your money is a waste. Nobody goes, ‘Oh, it’s 30 days, I need to pay my bills.’ It always has to be chased. We’ve tried lots of different things. We’ve tried talking about how they would pay more if the payments were delayed; we’ve said we’ll give them a 5% discount if they pay us now, but none are concrete solutions,” a participant explained.
Scores of untimely payments means a disruption in cash flows for companies. For suppliers, who have to pay a sum in advance to procure materials to deliver to their customers, late payments mean an uneven flow of funds. “Working with LCs (Letters of Credit) or specialised bank guarantees could give us some breathing room.”
The complexity of payment issues in the design and construction sector is such that even financial institutions like banks and FinTech companies appear hesitant to offer solutions.
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Date added:
27 April, 2023
