What’s happening with construction companies’ accounts receivable? Right now, in our recovering economy, we are more than well-aware that the construction industry, who took one of the hardest hits during the recession, has much to overcome. In such a hesitant economy there are naturally fewer construction jobs but the lucky companies who get these jobs are finding they are having a harder time getting paid.
Accounts Receivable News: Construction Companies Wait Longer Than Ever to Get Paid
Sageworks recently released data that reveals contractors waited on average 80 DAYS to get paid for their work, which was up from 58 days in 2009. Behind them are engineers and architects who wait 73 days to get paid (along with the rest of the housing industry).
How did Sageworks gather this data? They analyzed accounts receivable days for privately held companies across the construction industry, everywhere from the beginning stages, such as architecture, to those for say, flooring or cabinetry. Those in the earliest stages of construction has steadier accounts receivable compared with 2010 than the accounts receivable contractors finishing up the project.
Sageworks figured this average by measuring the average number of days a company takes to collect payment on goods or services it sold. It is the company’s accounts receivable divided by sales, then multiplied by 365. As you can assume, the bigger the number, the longer it is for them to get paid.
This delay in accounts receivable collections for construction is something to be watched. Sales are already down for these companies, which automatically enlarges their average accounts receivable collection days.
However, there might be hope, at least for the residential side of construction and their “sales” end of the equation. Sageworks also has reported that private residential construction companies noted a 5.3% increase in sales in 2011. It marks another year of sales growth (after 2010) for the industry, after declines in ’07-’09. Amidst these numbers, builder confidence also has steadily grown, showing that they are starting to see a change in their respective areas.
These factors are small but are still positive signs that there could be more work available for construction companies in the future. Although this doesn’t help them get paid faster, it could at least help ease some of the pain caused by their late paying customers.