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INDUSTRY INSIGHTS
Construction’s Cash Flow Crisis SOLVED - Are 24 Hour Payment Terms Truly Achieveable?

We rarely explore the area of finances in AEC. But we hear time and time again of how crippling payment terms can be for contractors and suppliers across the supply chain.

I make a joke that as a contractor “you are always one bad client away from going bust”. The reality is, this is no joke. It’s the truth. And it is a big problem within the industry.

The company we explore today doesn’t directly deal with preventing insolvencies. But it can certainly help reduce the risk of the eventuality.

By enabling faster payment terms, EarlyTrade helps contractor’s improve cashflow and improve their financial position, which ultimately means they’re less likely to file for bankruptcy.

In today’s bulletin, we explore EarlyTrade’s journey and how they plan to revolutionise construction payments. Learn how 135,000 contractors have accessed $2.5bn in early payments, as well as the shared benefits across the entire eco-system utilising early-payments.

The EarlyTrade Story

In the construction industry, cash flow isn't just a financial metric—it's the lifeblood that keeps projects moving forward. Traditional payment terms, often stretching 60 to 75 days in the United States, have long been a source of strain for subcontractors who must manage labor costs, purchase materials, and maintain operations while waiting for payment.

Enter Guy, a former KPMG accountant whose journey to revolutionising construction payments began not in hard hats and steel-toed boots, but in the sleek offices of London's tech scene. After experiencing firsthand the frustration of late payments causing missed bonuses and canceled holidays at a growing tech company, Guy began exploring solutions to the age-old problem of payment delays.

This personal experience sparked what would eventually become EarlyTrade, though the path wasn't as straightforward as it might seem.

Initially launching in 2018 as a broad-market solution for late payments across all industries, EarlyTrade found its true calling during the COVID-19 pandemic. When Australian states shut down construction operations, the company began helping commercial builders support their subcontractors through the crisis. What started as a goodwill gesture revealed an unexpected truth: the construction industry's demand for early payment solutions was astronomical compared to other sectors.

Understanding the Construction Cash Crunch

The reason became clear: construction's unique payment challenges. Subcontractors typically operate on thin margins, paying workers every 7-14 days and purchasing materials up to 90 days in advance. Yet they often wait two to three months for payment after completing work. This misalignment creates a perfect storm for cash flow problems, contributing to construction having the highest bankruptcy rate of any sector in major markets like the UK, US, and Australia.

Consider this real-world scenario: A mechanical subcontractor needs to purchase $100,000 in HVAC equipment for a commercial project. They must pay their supplier within 30 days, pay their installation crew weekly, yet won't receive payment for the completed work for 75 days. This gap forces many subcontractors to either take on expensive debt or juggle payments between projects—a risky practice that can lead to business failure.

A Market-Based Solution

EarlyTrade's solution is elegantly simple: they've created a marketplace where subcontractors can offer small discounts on their approved invoices in exchange for immediate payment. Unlike traditional financing options like invoice factoring, there's no lending involved. Instead, general contractors use their own strong balance sheets to pay early, earning a return on their capital while helping their supply chain stay healthy.

The system operates like a financial market, with discount rates fluctuating based on supply and demand. Subcontractors might offer a 2-3% discount on their invoices to receive payment immediately instead of waiting 60 days. For general contractors, this translates to an impressive 25% annualised return on their capital—far better than traditional investment vehicles.

Making the Numbers Work

To put this in perspective, let's break down the economics: A subcontractor with a $100,000 invoice might offer a 2% discount ($2,000) to receive payment 60 days early. While $2,000 might seem significant, compared to traditional financing options like credit cards (20%+ APR) or invoice factoring (often 5-8% per invoice), it's actually a cost-effective solution. Moreover, the ability to maintain steady cash flow often allows subcontractors to take on more projects and negotiate better terms with their own suppliers.

Impact and Future Implications

The platform's success speaks for itself: 135,000 subcontractors now use EarlyTrade monthly, with $2.5 billion in early payments processed last year alone, saving subcontractors $50 million in financing costs. But perhaps more importantly, it's creating a more sustainable construction ecosystem where subcontractors can focus on their work instead of worrying about their next payroll.

By solving the payment terms puzzle, EarlyTrade is helping ensure they can keep doing exactly that.

 Looking Ahead: Industry Evolution

As interest rates fluctuate and construction projects become more complex, the importance of efficient payment systems grows. CFOs at major construction companies are increasingly looking at early payment programs not just as a way to support their supply chain, but as a strategic tool to improve their own returns. With traditional investments yielding less in a declining interest rate environment, the ability to earn substantial returns by simply paying vendors early is becoming an attractive proposition.

Key Takeaways for Industry Professionals

For General Contractors:
Early payment programs can provide returns significantly higher than traditional investments while strengthening your supply chain and improving subcontractor relationships.

For Subcontractors:
Consider the true cost of waiting for payment versus taking a small discount. The ability to maintain consistent cash flow and potentially take on more projects might outweigh the discount offered.

For Project Owners:
Understanding how payment terms affect project delivery and costs can lead to better project outcomes. Supporting early payment initiatives might result in more competitive pricing and more stable project execution.

The future looks promising for this construction fintech innovation. With strong growth in North America, where payment terms are particularly challenging, and an impressive product with strong financial metrics, EarlyTrade is proving that sometimes the best solutions come from unexpected places—like a frustrated accountant who just wanted his holiday back.

Check out the full episode with Guy Saxelby👇👇👇

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