The backbone of the construction sector: subcontractors
The building and construction sector is a major contributor to New Zealand's economy making up 7% of GDP, 10% of employment and 12% of businesses, according to the annual report of the Ministry of Business, Innovation and Employment (MBIE). The sector's growth remains strong despite the challenges of the COVID-19 pandemic.
Ican Contracting is one of the thousands of construction businesses in New Zealand forming part of an often multi-tiered supply chain. As a typical subcontractor, Ican Contracting is part of the backbone of the construction industry.
Todd Hunter, CEO and owner, has been running his Mount Maunganui based interior fit-out company for 13 years. Initially starting out as a one-man band, Todd has had the responsibility of looking after staff for the past 10 years - currently employing six workers.
Todd says he is the all-in-one owner, operator and admin person of his business. He has built an impressive reputation that lets him run Ican Contracting on word of mouth without the need for promotional tactics:
"I've built my business completely from word of mouth - I just let my work do the promotion."
"Work now - get paid later" culture
Being the person in charge of everything comes with freedom and burdens alike. Particularly in construction - an industry shaped by a culture of "work now, get paid later".
Subcontractors who are at the bottom of the supply chain often have to source the materials and incur substantial upfront cash expenses for construction work. Consequently, subcontractors are hit worst by late payments and even standard payment terms can stretch their cashflow.
“It’s common practice to be paid late in construction - and it’s ruining the industry."
Payment problems in the construction industry are not a new phenomenon. Traditionally the industry has suffered from cost overruns and project delays which often cause financial difficulties to parties way down the supply chain. The problems surface in the form of under-payment, late payment - or worse - no payment at all. Delayed payments cause cashflow gaps which drive contractors and subcontractors to source additional funding by means of overdrafts, loans or in the case of Ican Contracting their personal savings:
"I’ll often wait for more than two months to get paid - meanwhile I have to pay for materials and wages out of my own pocket.”
While Todd is waiting for cash to flow into his business, he can't hit pause on his commitments and responsibilities. Employees need to be paid weekly, materials for ongoing projects have to be sourced and fixed costs have to be covered.
“Lucky I'm good at saving. I always pay my guys - whether or not I have the money. But obviously no one wants to get into their own bank account to pay someone else.”
Early payments help fill the cashflow gap
This is where Relay comes in. Todd found out about Relay's early payments programme through one of his customers. Construction businesses work with Relay to set cash aside each month that can go towards paying their subcontractors early. Relay reaches out to subcontractors with early payment offers which they can accept on an as needed basis:
"I love getting an early payment message from Relay. The best thing about Relay is how easy it is to use. Just login and get the money - always makes my day."
The early payments programme is a win-win for both parties - subcontractors get access to early payment on demand at an affordable cost to support their cashflow while contractors invest in the stability of their supply chain. With Relay, construction payments remain stable and frequent, mitigating the risk of cashflow problems and ensuring a healthy supply chain.
If you want to find out how Relay can help your business with cashflow, get in touch.