As home prices continue to soar in much of the country, the construction industry is predictably following suit.
In fact, according to the Australian Bureau of Statistics (ABS), the value of total construction work done was nearly $54 billion in the September quarter.
The Housing Industry of Australia expects a near-record number of new homes will be built over the next 12 months.
Great news for builders, tradies and subcontractors, right? Not so fast.
As supply chain shortages wreak havoc across the world, the cost of raw materials like timber have skyrocketed.
Companies that agreed to contracts 12-18 months ago are now having to absorb very sharp cost increases, and there’s often no margins left in the job.
The Association of Professional Builders estimates that the average cost of a contract for a builder has gone up between 15% to 20% over the past six or seven months alone – and up to as much as 50% in some areas.
But because builders have signed a fixed-price contract, they’re unable to recoup the costs from customers, which means they have to absorb it.
In some cases, builders are handing back contracts or folding altogether.
More than 2000 individual home-buying customers across Queensland, Victoria and NSW were hit by the collapse of builder Privium, whose administration in November 2021 saw them owing creditors close to $43 million.
Privium is hardly a one-off.
In the last 2 months alone, Hotondo Homes in Hobart has left as many as 80 contractors and 40 customers in limbo with unfinished homes, Tasmanian-based Inside Out Construction have gone into voluntary administration, and ABD Group in Melbourne has been put into liquidation.
On the Sunshine Coast, BA Murphy Constructions has had their licence suspended by the Queensland Building and Construction Commission after allegations it wasn’t paying sub-contractors.
This “profitless boom” in construction is highlighting the need for small businesses to be paid on time.
How bad is the problem?
According to a government report, there are more than 2.3 million small and medium-sized enterprises (SME) in Australia.
Businesses are owed an estimated $115 billion a year in outstanding invoices, with up to $9 billion never making it to their bank account.
That equates to $3,913 in unpaid invoices for every SME in the country.
Nearly 1 in 6 (16%) Aussies businesses admit it will be ‘difficult’ or ‘very difficult’ to meet their financial commitments over the coming 3 months, according to the ABS.
That equates to 368,000 small businesses facing potential ruin.
Debtplacer’s Best Practice tips for managing overdue invoices
- Review your terms and conditions. Always review your terms and conditions and ensure that they set out when invoices are due. It is always best practice to also ensure your accounting systems are up to date to reflect what has been agreed with the debtor and that the overdue invoices that have been raised reflect your agreement.
- Send a reminder. Contact your customer by phone, email or meet with them in person to either discuss a payment date or negotiate a payment plan. A quick phone call or an in-person meeting can go a long way but just remember to document all your communication and set strict deadlines on when the debt needs to be paid by.
- Send a letter of demand. A letter of demand is the next logical step for businesses dealing with overdue debts as it will speak to your attempts to recover the debt if things need to progress to a debt collection agency or law firm.
- Outsource to a debt collector. Debtplacer makes outsourcing the collection of aged receivables easy. Simply create your free account with Debtplacer and list your overdue debts from the one portal. Choose from a marketplace of collection partners and use the Debtplacer portal to manage your collections in real-time.