Australian construction SMEs face severe cash flow risk from chronic payment delays
Author: Darren Tredgold, General Manager, Independent Steel Company
Construction payment delays have quietly become one of the most destructive forces in Australian small business. As the General Manager of Independent Steel Company, I have watched this crisis hit our supply chain harder with every passing year. We distribute steel across South-East NSW from branches in Queanbeyan, Nowra, and Moss Vale. So when builders do not pay on time, we feel it before most.
The numbers confirm what we see on the ground. Australian SMEs are collectively owed $115 billion in overdue payments each year, and the construction sector sits at the heart of it. Let me walk you through what the data reveals and why it matters for every supplier feeding this industry.
The federal Payment Times Reporting Register paints a grim picture. Only 58.6% of small business invoices in construction get paid within 30 days. Compare that to financial services at 84.7%, and the gap becomes impossible to ignore.
Meanwhile, average payment terms in construction sit at 37.9 days. However, those contractual terms rarely match reality. The Australian Small Business and Family Enterprise Ombudsman found that only three in ten large businesses pay their small suppliers within 30 days. Even worse, a quarter stretch payments beyond 120 days.
For a steel distributor like us, 120 days is not a minor inconvenience. We have already paid our own suppliers, covered freight, and carried stock for months before that invoice lands. These construction payment delays turn our working capital into someone else’s interest-free loan.
CreditorWatch data shows B2B trade payment defaults jumped 68.1% in the year to August 2024. On top of that, the construction sector now accounts for 23.8% of all ATO tax debt defaults over $100,000. These are businesses borrowing from their tax obligations just to survive. When your customers are in that position, your invoices drop to the bottom of the pile.
The domino effect in construction is unlike anything in other industries. When Probuild collapsed in February 2022, it left more than 2,300 creditors chasing an estimated $300 million. As unsecured creditors, subcontractors and suppliers were expected to recover almost nothing.
Porter Davis followed in March 2023, owing $557 million in total debts. Trade creditors were told they would likely receive zero payment. In contrast, Commonwealth Bank’s $32.9 million secured debt was expected to be repaid in full. That asymmetry should concern every material supplier in the country.
Between June 2022 and March 2025, more than 7,600 construction firms became insolvent. This represents 26.5% of all corporate insolvencies nationally, despite the industry making up less than 10% of GDP. Furthermore, 79% of those failed businesses had fewer than 19 employees.
The human cost goes beyond balance sheets. A January 2025 CommBank/UNSW survey found 27% of SME owners had dipped into personal savings or gone without paying themselves. Nearly 80% of Australian SMEs reported significant cash flow impacts in the prior 12 months. One in six now loses over $2,500 per month to late payments alone. I know steel fabricators and smaller distributors who have lived this firsthand. Construction payment delays do not just strain budgets. They destroy livelihoods.
The Reserve Bank noted that for the median builder, roughly 40% of total liabilities are short-term unsecured trade credit. That is about double the figure for businesses in other sectors. So when a builder goes under, material suppliers like us are left holding the bag. Construction payment delays are not just annoying. They are existential.
Despite the severity of this crisis, I have noticed promising shifts on both the regulatory and technology fronts.
Queensland now requires project trust accounts for contracts over $10 million, expanding to $3 million from March 2025. Similarly, Western Australia introduced retention trust schemes covering contracts above $20,000. These frameworks ringfence payments so they cannot vanish when a builder fails. For suppliers dealing with construction payment delays, trust accounts offer genuine protection.
At the federal level, the reformed Payment Times Reporting Scheme now identifies the slowest 20% of payers and can force them to publicly declare their status. While it is still early days, reputational consequences are a powerful motivator.
On the technology front, platforms like Earlytrade now serve over 90,000 subcontractors through dynamic discounting. They pay suppliers 28 days earlier on average. Payapps, now owned by Autodesk, has digitised progress payment claims and cut approval times by up to 50%. Invoice financing providers like ScotPac advance up to 95% of invoice value within 24 hours.
New cross-border payment infrastructure and B2B invoicing platforms are also tackling the broader problem of slow business payments. The underlying principle is the same: when cash gets trapped in approval chains, small operators suffer first and worst. Chronic construction payment delays represent the most extreme version of that pattern.
At Independent Steel, we have learned hard lessons about protecting cash flow. That means running tighter credit checks and building personal relationships with site managers who can flag warning signs early. Our terms reflect actual risk, not industry convention. None of this eliminates exposure completely, but it keeps us trading when others have gone under.
The $115 billion late payment crisis is not just a construction problem. It is an Australian business payments problem. And solving it requires every stakeholder to stop treating construction payment delays as business as usual. If you supply the building industry, protecting your cash flow is not optional. It is survival.
