An application for payment can be the biggest hurdle for company directors in construction who want to grow their business.

They have been used in the sector for years as a means of paying for large projects in small sections. A sub-contractor will document all the work that their team have completed on a project and send it to the contractor or client. This will include a clearly defined date for when payment is due for that segment of work.

The process is reasonably fair given that it offers transparency for clients and regarding costs. However, it can leave construction workers waiting long periods for a sum that might not be approved, causing huge delays to their upcoming projects.

We’ve highlighted the main challenges that these payment terms can inflict on the construction industry. What’s more, we explain why commercial finance can be a great way to ease the lengthy periods between work completed and payment made.

Under Valued Work

After a contractor submits a payment request to a client, it still doesn’t guarantee that they will be paid on time. Clients can handpick elements of the construction project they do not see as complete and issue a Pay Less Notice.

Whilst subcontractors have the right to suspend their work and dispute the client’s decision, it can be a time consuming and costly process.

That’s why it’s recommended to have funding that can assist with issues like this. It creates a buffer for when payment is delayed, avoiding damage to the company’s bottom line.

Anxiety

Applications for payment were introduced as a less stressful method for construction workers to receive money for their work. According to Payapps, payment applications are “aimed squarely at improving the ability of subcontractors to access funds that will help them remain liquid in the face of lengthy 60, 90 and 120-day contract terms.”

This is true to an extent because workers are not waiting for a lump sum when the project is completed. Payments are made in more manageable sections, long term.

However, the threat of a Pay Less Notice and payment disputes are also a looming anxiety. The process of consistently submitting applications without an accurate indication of what will be paid can be very stressful for company directors. This is particularly true when staff and suppliers need to be compensated.

Lines of credit and unsecured business loans work in minimising the uncertainty of an application for payment. You can rest easy in the knowledge that you have backup funds if any issues are brought to light.

Threat to Status

Uncertainty surrounding business finance can lead to delays in paying employees and suppliers, and this will have a detrimental effect on a company’s reputation.

In a survey, The Workforce Institute recorded that “49% of respondents would try to find new employment after experiencing two payroll errors, including being paid the wrong wage, or being paid late”.

Without prompt payment, a company can face a high turnover of staff and a negative reputation amongst tradespeople. This is the same rule of thumb for suppliers, who need payment on time without issues. Financial efficiency is vital to winning more construction contracts.

Commercial finance ensures that you meet every deadline to keep your business moving, from staff wages to tax bills. Payment applications have a reputation for being unpredictable, so it’s advisable to be prepared for any outcome.

How To Manage An Application For Payment

Injecting working capital into your business is a great way to maintain profits while you’re waiting on a payment application. You’ll have a buffer to pay for the running costs of your business and an opportunity to take on more work

At Crispcap, we have nearly a decade of experience in providing construction finance to businesses in the sector. We work with companies to arrange funding that perfectly fits their operation and long-term ambitions.

Apply below to learn more about our unsecured business loans and lines of credit.

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