Anyone in the construction game will tell you that one of the biggest challenges across the board is cash flow. It’s an industry where invoices languish unpaid for months, big jobs take that long to complete and disputes are rife. With immediate payment systems and a roster of simple, short-term jobs on offer, home services ‘marketplaces’ could very well be the smart way to alleviate cash-flow pressures.
It’s not just small independent tradies and contractors who struggle with cash lag. Even big-name construction companies run into trouble from time to time. It’s easy to see how it happens… Staff and overheads have to be paid no matter what – even if the cheque didn’t come in the mail or the tender fell through. This partly explains the high rate of insolvencies in the industry – and why Australian construction has a reputation for not being without risk. Cash-flow issues have been a major contributing factor to the high rate of insolvencies in the industry.
Where it all goes wrong
To stay above water, construction businesses must have contingency plans in place to help them shore up the business between payments. Typically, cash-flow problems arise in the construction industry when:
- suppliers or sub-contractors are paid before payment for the actual job comes through
- fixed assets are purchased out of necessity
- there is a time lag between invoicing and payment
- there is a gap between when one job ends and the next begins
- job overruns that project managers won’t pay for
- businesses are hit with costly legal disputes
THE POTENTIAL SOLUTION
Technology may have found the answer with its uncanny ability to connect service providers directly with customers seeking a service. Over the past five years, ‘Uber-esque’ trade and home service ‘marketplaces’ have emerged. App and web-based outfits such as Homeblitz, Hipages, GetQuote and Licensed Trades, to name a few. These operate similarly to directories, only with more benefits for registered suppliers. How does this help the cash-flow crisis? Because one of these benefits is immediate payment once the job is done – not 7-10 days later, not 4-6 weeks later, today.
While short-term residential jobs may not be the type of million-dollar projects you had in mind when you first started, they do solve the liquidity problem when times are tight. You reach new customers without marketing outlay or any business development investment, the sign-up cost is next to nothing, and the jobs are usually relatively straightforward with a speedy turnaround to free you up for your next big project.
The accountant in me says:
I’m all for this solution because it gets much-needed money in the door without a whole lot of effort or expenditure. Remember, cash is king and tradies and other home service providers need to keep it flowing to cover fixed overheads. From a broader business standpoint, I like the sound of the business development and flexibility benefits too. Not only do home services and trade marketplaces offer quick payment for services, they increase the service provider’s visibility online and they can pick and choose their jobs. What’s the harm in listing? There’s no risk, you’re not locked in and a few short ‘n’ sweet jobs could be just the thing to tide you over between the big-money projects.