The construction industry is facing increasing financial pressure as delayed payments, rising costs and shrinking margins continue to weigh on the sector, according to new research from accountancy and advisory firm, Menzies. The findings suggest that liquidity challenges are becoming a critical issue for firms throughout the construction supply chain.
Menzies’ latest report, Fixing the Foundations, surveyed 250 senior finance decision-makers across UK construction and property businesses. It found that 86% of firms are either already experiencing serious financial distress, or believe they are at risk of reaching that point within the next eight months.
Payment delays remain one of the sector’s most significant challenges. More than nine in ten respondents (93%) reported receiving late payments from clients, contractors or supply chain partners, with invoices running an average of 53 days overdue.
The impact is extending beyond working capital management, with one in five firms (20%) now using their own resources to fund projects while awaiting payment.
At the same time, inflationary pressures continue to erode profitability. Nearly a quarter (23%) of firms said higher labour and material costs are placing unsustainable pressure on project margins.
Fixed-price contracts agreed before the recent inflation surge are proving particularly problematic, with 20% of respondents reporting that such contracts are delivering significantly lower profits than anticipated. A further 18% said delays have reduced profitability to the point where some projects are no longer commercially viable.
The research also highlights broader concerns around resilience and risk management. More than one in ten firms (14%) said they were not confident their business was adequately protected against supply chain disruption, while 18% warned that a major insolvency within the supply chain could create financial difficulties for their own organisation.
Menzies partner Freddy Khalastchi said: “Too many construction businesses are still trading, still winning work, but heading in the wrong direction without realising it. A full order book can mask a lot of problems, and in construction the gap between looking busy and being profitable can widen faster than most owners appreciate.
“Most firms usually come to us for advice because something has forced their hand, but by that point, the routes available for recovery are far narrower than they would have been six months earlier. The firms that manage to work through their financial issues are not always the biggest or most resourced. They are the ones that recognised the warning signs earliest.”
For contractors, subcontractors and suppliers, the findings underline the importance of robust cashflow forecasting, tighter credit control procedures and greater scrutiny of project profitability. With payment delays remaining widespread and cost pressures showing little sign of easing, maintaining liquidity is becoming as important as securing new work.
