This blog post is brought to you by our partner Ontik.
Macro-Economic Challenges in the Industry
The UK builders’ merchant industry faces significant macro-economic headwinds. Despite initial forecasts projecting a 4.3% growth in construction output for 2023, actual figures were adjusted to a modest increase of 2.8%. This adjustment reflects the broader economic pressures, including escalating energy and commodity prices alongside rampant inflation, all of which undermine the industry’s profitability and operational efficiency.
The residential construction sector, once a stronghold of stability, is now anticipated to experience a downturn, attributed to the diminishing demand for new homes. This is exacerbated by surging loan rates and material costs, leading to reduced orders for building materials and subsequently affecting builders’ merchants.
In parallel, shrinking project pipelines and hesitant investor sentiment are putting further pressure on cash flow across the supply chain. With tighter lending conditions and fewer new developments breaking ground, merchants are seeing longer payment cycles from contractors facing their own financial strain.
Rising insolvencies among subcontractors and small builders are intensifying the risk profile for merchants extending credit, creating a more cautious trading environment. As payment delays ripple through the chain, merchants are forced to balance customer relationships with increasing exposure to bad debt.
Ultimately, these macro-economic challenges are not just reducing volume—they’re squeezing liquidity and testing resilience at every level of the construction supply network.
Related Reading:
82% of Construction Firms Failed in 2024—Poor Financial Oversight Was a Key Factor
Insolvency Trends and Their Impact
The first quarter of 2023 marked a worrying trend for the construction sector, with firms within the industry accounting for nearly 20% of all recorded insolvencies. This represents a 25.7% year-on-year increase in insolvencies from 2021, continuing into 2023 with an 18% rise.
Experts forecast a grim outlook, predicting the bad debt in the UK construction industry to escalate from £300 million at the start of 2023 to an alarming £1 billion by early 2024. This spike is primarily due to the cascading effect of major insolvencies, posing severe risks to builders’ merchants through late or failed payments.
The Late Payments Dilemma
Over 50% of invoices issued to construction firms in the previous year were settled late, a trend that shows no signs of abating. Late payments significantly disrupt cash flow for builders’ merchants, heightening their risk of financial instability or insolvency.
With the construction sector’s insolvency rates climbing, the late payments issue is expected to intensify, further straining merchants’ financial health.
How to ensure positive cash flow in 2024
At Ontik, we understand the pressures that you face in regards to your cash flow. That’s why we have put together a comprehensive guide on the top 10 ways for independent builders’ merchants to manage cash flow in 2024. In this ebook we dive into various strategies that you can deploy to maintain a positive cash flow in a challenge macro environment. If you want to find out more about how Ontik can help you achieve this with their all in one payment solution that please visit the Ontik website.
Hope you find it useful!
Chris – Founder, Ontik
