Together with the hospitality sector, construction is responsible for the majority of all bankruptcies each year. Construction is a broad, but precarious sector, with numerous stakeholders hanging together, reliant on each other, like a chain. Disruption in the sector often affects all parties. Graydon can assist with appropriate compliance solutions to manage risks and detect opportunities.
Overview & challenges
2020 was a special year. The bomb has not yet burst, but in the medium term, the coronavirus crisis will also take victims from the construction sector. Everyone realises that this is coming, because the construction sector is sensitive to the economic cycle, but at the same time also late-cyclical in nature.
Consumer confidence is declining. Uncertainty causes investments and major projects to be postponed. The number of government tenders for such projects has also decreased considerably. In addition, approval of permits and planned permission has been painfully slow.
It means that the players in the construction sector still have a number of projects to complete, but new orders are scarce. The order book for the near future looks empty. A price battle, pushing margins further down, lurks around the corner. It is a major challenge for the sector to remain competitive.
Most players know the use of company information to check the (financial) reliability of customers or subcontractors. In these times, it becomes more important than ever to perform these checks consistently and to continuously monitor all business relationships. Not only with regard to creditworthiness, because figures from past annual accounts– before the Corona crisis – no longer have any value. You also need to know whether, or how quickly an organisation can recover once support measures cease and all (deferred) bills have to be paid. As many as a quarter of the construction companies that were healthy before the crisis are now in a difficult position. So make it a habit to be proactive instead of reactive.
Customer due diligence in the construction industry
In the midst of all these challenges, it is essential to perform thorough customer and supplier due diligence before your company goes into business with other parties. It ensures that - even before you get started - you can already estimate the reliability of your business relations. You don't want to risk starting a project with someone with a dubious reputation. If this comes to light when the project is up and running, it is already too late. Due diligence prevents these nasty surprises during construction projects or at least significantly limits the chance of this. So in addition to a credit check, it is advisable to thoroughly research the background and reputation of your partners for strategic projects.
Late payments has been an ongoing issue in the Construction Industry with serious consequences to smaller players in the industry. Larger firms who fail to pay on time to their sub-contractors can cause serious supply chain risk, particularly putting smaller firms out of business due to cash flow problems. As a result, the construction industry's 'late payment charter' is aimed at tackling the late payment culture. However, we assess the impact it's had within the industry.
In the sector, more and more stories of fraud involving building materials and machines are also emerging. A big blow to the construction companies that are affected by it. Be aware that there are solutions to detect fraud at an early stage.
In a sector where there are many risks, you need accurate information that takes into account the most recent developments. Every weak link in the chain is a risk. Because as soon as a link fails, it has an impact on your company. Graydon is your strategic partner and provides you with the right solutions to manage these risks and organise processes efficiently. But also to detect opportunities. Because organisations that focus on healthy companies can significantly improve their margins and Return On Investment (ROI).