As Building Projects Stop Material Suppliers Are Facing Pressure
The construction industry has always been a high demand industry, accelerating the growth towards expansion and replacement of infrastructure. With this non-stop demand for infrastructure growth, there has rarely been an instance when income from operations has been halted, but every so often there comes a global crisis that has interrupted this lucrative industry.
When a crisis does hit, construction companies must stop work, because the clients they contract for suddenly notice that they have no cash to pay for projects, and with that there is no demand elsewhere. When construction halts, this has the biggest impact on materials suppliers, whose industries are 100 percent dependent on the construction industry working at peak levels. When construction activity stops, material suppliers have no revenue coming in, and cannot pay the bills.
Supply Does Not Meet Demand
A material suppliers’ biggest nightmare is when there is no demand to match in many cases an infinite supply. They essentially hold the skills and the key to material, but in a market with no demand for this material, the only way to bring in revenue is to lower costs in hope that construction activity may resume on-demand from lower costs of construction. Either way, this dries up the revenue, and then material suppliers cannot properly pay its workers, its bills, or any other costs needed to produce revenue. Over time these companies rack up large amounts of debt and cannot pay it back, which means that a lot of the unpaid balance goes to a credit agency.
Post Pandemic America Uncertainty
On top of this, they know that the only way they can pay debt back is to hope for revenue to come back to sustainable levels. More importantly, they might have to accept a short term decline in demand and find a way to cut costs. This can mean downsizing operations, capital property and equipment, and laying off a lot of its workforce. This can become a nerve wracking process for owners of these supply companies as they do not know how long the drop in demand can last. It is the uncertainty of knowing when a post pandemic America will come so they have little ability to plan or know when business could resume or re-expand.
Construction Companies Defaulting on Invoices
Even more devastating is a supplier’s accounts receivables, where work has already been done and products have been shipped but construction companies themselves cannot pay invoices. Along with the material suppliers, when a pandemic halted work because customers could not pay, revenue dried up for construction companies and they could no longer pay out their expenses. This has led in many cases having a construction company default on their invoices. The developers are also in a similar situation as they know that during a pandemic, there is less demand for real estate, and they may have to sell a property for much less, eating into their profit margin.
These problems are not unique but rather they are widespread throughout the industry. Construction companies and developers are reading into their contracts to determine if a force majeure or suspension of rights is applicable. Force majeure refers to acts of god but does not specify if a pandemic qualifies in these circumstances. These contracts are critical because it outlines whether a company is liable still for executing a contract and whether they are entitled to pay out or receive money. In either case, whether force majeure is applied or not, one side or the other will have to rely heavily on credit agencies during these times, because odds are, they are not finding revenue elsewhere.
Finally, there is the question of insurance and loans. Did the company have any insurance policy to cover itself in unprecedented times when revenue dried up? Can it payout due to unforeseen disruptions in the workforce to carry it through? Are government-backed loans enough to see through an undefined time of uncertainty of when demand will pick up? These are generally the last obstacles remaining until a company is forced to deal with a building materials collection agency.
Role of the Debt Collector
When companies’ debt falls into the hands of a building material debt collection agency, it is not always the goal of expecting payment back right away. It is the goal of the collection agency to work with its clients to work on a plan to help them pay back their debt. This can involve dragging out principal payments sometimes interest-free and potentially holding off payments for a certain amount of time until workload picks up for them.
Building materials debt collection agencies are flexible by nature because like a bank or any other lender, terms of repayment are always negotiable and can be modified. It is the understanding of the debt collection agencies that the reason they have collected debt is that in most cases it cannot be paid back immediately. With the proper planning on both the side of the debt collection agency as well as the company, a reasonable timeline can be established to pay back debt and work with the company to get back on track.