Firms extend financial waiting period
In a recent study conducted by credit insurer Coface, it has been revealed that the lengthening of payment terms in the construction industry is primarily driven by economic slowdown, competitive pressures, rising costs, and heightened risk of payment defaults.
The study, which was presented by Coface's chief economist, Christiane von Berg, to journalists in Frankfurt am Main, involved 847 companies between May and June this year. The results suggest an optimistic outlook for the construction industry in 2026.
One of the primary factors driving longer payment terms is economic uncertainty and slowing demand. Across Asia-Pacific, including markets relevant to construction, companies are facing slower demand and economic uncertainty that encourage granting longer payment terms to secure business.
Rising costs and competitive pressure are another significant factor. Increased input and operational costs are pushing companies to extend payment deadlines to manage cash flow better in a competitive environment.
The growing risk of payment delays and defaults is another concern, particularly in markets like China, where payment terms and delays combined have extended average waiting times to over 140 days. This reflects increased caution among suppliers and the structural risks in the construction sector and related industries.
Although sectors such as Wood, Agro-food, and Automotive reported the highest increase in ultra-long payment delays, the construction industry shares many of these challenges, including payment delays driven by project financing constraints and market volatility.
The high demand for payment terms is also driven by intense competition. In fact, 84% of the companies in the study offer customers individual payment arrangements, the highest level since 2016. This demand for individual payment arrangements in the construction industry is higher than it has been in years.
The first driver for payment terms is a relaxed financial situation, where money is not urgently needed, and waiting times are not a problem. However, this relaxed financial situation can lead to longer payment terms, which in turn can exacerbate the risks of payment delays and defaults.
Despite these challenges, the study suggests an optimistic outlook for the construction industry in 2026. The extended payment terms are a risk management strategy amid uncertain market conditions, and companies are finding ways to manage these risks effectively.
In conclusion, the lengthening of payment terms in construction is a complex issue, driven by a combination of economic slowdown, competitive pressures, rising costs, and heightened risk of payment defaults. However, with careful management and strategic planning, companies in the construction industry can navigate these challenges and continue to thrive in the years to come.
- In the construction industry, finance plays a significant role in the lengthening of payment terms, with companies extending deadlines to manage cash flow in a competitive environment and due to rising costs.
- The optimistic outlook for the construction industry in 2026 is influenced by the extended payment terms, which serve as a risk management strategy amid uncertain market conditions, demonstrating the critical role finance plays in navigating these challenges.
