This is the final blog in our series about the ups and downs of the construction sector in 2020. In this blog, we focus on cashflow as a bottleneck for the construction sector and we share our conclusion, based on the report.
Cashflow
The construction industry is a highly competitive sector and has many issues which result from finance. This is caused, partly, by banks that resist financing to avoid associating with construction or similar projects. This bottlenecks the construction industry because the sector relies heavily on bank financing to complete and plan projects.
Payment delays reduce both the speed at which projects can proceed as well as damages the industry as a whole
Furthermore, the delay in payment has gotten longer, and the trend of non-payments has deteriorated, meaning the likelihood a project is not financed correctly is higher. Current payment durations average at around 90 days within the UK construction sector, with payment delays and non-payment occurrence remaining high. The occurrence of non-payment transactions, which increased in 2019, is expected to increase throughout 2020 as well. Payment delays reduce both the speed at which projects can proceed as well as damages the industry as a whole. Struggles in financing and maintaining payment has the consequence of decreasing the supply of construction, which is already in a shortage.
The connection between skill shortage, efficiency, and cash flow
In addition, the present skill shortage, which was discussed earlier, bottlenecks the sector’s productivity, further impacting the view that banks have on the sector. The connections between the skill shortage, efficiency, and cash flow may be the key to improving both payment delays and non-payment interactions. By addressing the skill shortage, the sector as a whole will be able to work towards the goals that the government and the industry have set, which increases the apparent productivity of the sector, and may incentivise new sources of cash flow to contribute.
Conclusion
Given the changes to the state of both the world and the UK in the past year, due to Brexit, COVID-19, and other external factors, it has been a very dynamic year for the construction sector. These changes have provided the industry with opportunities to grow and change, and even though the sector has experienced some negative effects of coronavirus, among other sources, it has also gained traction to improve because of the government construction sector deal.
For the construction sector to maintain its momentum, it must remain adaptable and expect change from all angles
Overall this year, the construction sector – like the world, has been very polarised. For example, January held very steady improvement for the industry, then April hit and the industry experienced a record drop in month-to-month output, following this; however, the industry experienced a record increase in month-tomonth output as an effective bounce-back two months later. Skill shortages also show this trend of polarisation. There is a large need for workers, but at the same time, the industry has improved education for those within the sector, as per the government construction sector deal.
Be adaptable and expect change
It’s not clear yet whether the sector will experience the same polarisation for much longer before it levels out once again, as it was at the beginning of the year. Because of the numerous influencers, which include COVID-19, Brexit, the government construction sector deal, skill shortages, and environmental expectations, the construction industry maintains a dynamic flux. The construction sector, however, manages to remain relatively stable through the impact of the challenges and polarisation it faces. For the construction sector to maintain its momentum, it must remain adaptable and expect change from all angles, and then the goals it sets for itself and the goals set by the government can continue to be fulfilled.
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