Is Engineering Debt Hurting The Industry?


Recessions are never good for the vast majority of firms, but they tend to have a slightly different impact on the construction industry. Construction is one of a select few businesses that frequently experiences a lag during periods of economic recovery because there is a natural lag between the start of new construction projects and the initial uptick in confidence in the overall economy.

Following an economic recovery, prospective investors take their time making decisions on projects, which further delays the start of construction. As a result, the building industry frequently endures a two-year lag before seeing a similar upturn.

As commercial and residential clients are now prepared to implement their growth plans, many construction companies are now beginning to witness the first signs of recovery in their industry. One of the reasons there are so many difficulties following a downturn in the economy is the building industry’s slow recovery.

Credit in Construction

In a construction project, everyone is waiting for money. The further down the chain the involved party is, the greater the potential for disruption and even abuse of the payment process,

Money may be lost on construction projects for a number of reasons. The most common, however, would be late payments. 

Since almost every party involved in the project waits for the top of the chain to pay them, any slight inconvenience, delay, or dispute regarding any component of the work, whether directly or not by that party, may affect the payments of all parties involved in the project. 

Why is there engineering debt?

Late payments and bad debt are long-standing cultural issues affecting profitability and the capacity of construction companies to make future investments.

The roots of late payments in the construction industry can be traced back in the 1970s when businesses began to rely more on potentially extensive supply chains of specialists who could offer their services to the main contractor as needed rather than hiring direct labor and leasing or owning their own plant. 

This increased the number of hands that payments passed through, raising the risk of delays as companies farther down the supply chain waited for the money to trickle down.

Retention is also a substantial issue. In this practice, clients are allowed to withhold payment if they deem the work carried out to be delayed or not in line with industry standards.

While retentions can provide significant security for clients, industry experts said the provisions had been improperly misused, choking the cash flow of many smaller firms.

How can construction firms cope with debt?

Receiving payment after contributing to a construction project can occasionally be a headache. You can definitely get frustrated by some homeowners, especially if they’re not following through with their end of the bargain.

Ideally, you’d want to get your money at the soonest possible time, but since this is not always the case, you better know your legal alternatives in debt recovery today.

Debt recovery, or debt collection, is a process of collecting the amount that the project owner (the debtor) owes to the contractor (known as the creditor). When conflicts emerge in building projects, contractors encounter a setback. The contractor can either experience slow, partial, or even non-payment.

When the debtor does not pay on time, you should make an effort to collect the debt by informing the debtor via calls, texts, or emails. In addition, you should know the reason why the debt has not been paid on time.

You can also send the debtor a formal letter or email asking them to pay within a certain time. You can include that you will take legal action if the debt remains unpaid by then.

If all these efforts are still for naught, get in touch with a debt collection agency that specializes in engineering debt. By tapping the experts, you can relax and let them handle everything, from contacting and actually collecting the outstanding balance.

To Summarize

Debt in construction can make or break a firm. This is why it is essential to be consistent and firm when collecting outstanding accounts. With the help of a collection agency specializing in engineering debt, you can rest assured you’ll get paid.