Louise Stewart, CEO ProjectPay Discusses The Future of Construction Payments

In the world of construction, there’s a hidden problem. Small businesses, which comprise 98% of the industry, face a big financial struggle. They do the work but often don’t get paid on time. And when main contractors go bust, which regularly happens, these same small businesses often end up with nothing.

The UK construction industry has experienced the highest rate of insolvencies, consistently ranking at the top across all sectors, with over 3,394 companies failing in 2023 alone.

So, what’s the solution? Louise Stewart, the founder and CEO of ProjectPay, has been collaborating with The UK government and global banking partners to safeguard construction payments. She firmly believes a fintech solution is key to this pressing issue.

Construction Payments Today

The construction industry’s payment landscape is riddled with inefficiencies, delays, and non-payments, especially for smaller players. Payment processes and flows have proven inadequate, causing considerable headaches for contractors and subcontractors. Small contractors, often reluctant to voice their concerns, are forced to finance projects, exposing themselves to significant financial risks. Recent research shows that 36% of these small businesses heavily rely on credit cards, with 33% depending on personal savings, far exceeding other sectors.

Across the pond, the USA has implemented measures to protect subcontractors and suppliers, resulting in a cultural shift where contractors take responsibility for paying their subcontractors. But in the UK, this isn’t the case. In fact, it’s still one of the only places where diverting and using others’ money without consequence is a common practice.
Now, the UK has tried to take measures by introducing Project Bank Accounts (PBAs). However, they have yet to extend to private sector projects, leaving small businesses vulnerable to financial misconduct.

There’s also the issue of the working capital gap, where contractors often have to carry the cost of delivering on a works contract before they receive their own payments, which is exacerbated by Project Bank Accounts (PBAs).

Can digital PBAs with Embedded Finance be the Solution?

The current state of construction payments resembles a “Buy Now, Pay Later” model, without the proper controls and risk management to ensure that the ‘pay later’ happens, with small businesses carrying the cost to ‘float’ projects using inappropriate and expensive finance products.

There is hope as innovative approaches, such as digitised Project Bank Accounts (PBAs), emerge. These modern systems ring-fence funds and keep them safe from main contractor diversion and business failure, meaning subcontractors will still get paid even if the main contractor’s business collapses. With this huge payment risk removed finance can be seamlessly integrated into the entire payment process. The ultimate goal is to ensure that payments reach contractors of all sizes at all levels of the supply chain without unnecessary delays or complications. The adoption of embedded finance will eliminate the need for expensive and high-risk financing products, ultimately relieving small businesses from the financial consequences of repaying loans even if they don’t get paid.

Final Thoughts

Looking forward, we foresee a wave of innovative fintech solutions tailored to meet the specific needs of construction businesses. These solutions, like ProjectPay, should prioritise solving payment issues from the small business perspective rather than focusing solely on larger contractors.

By reshaping the payment landscape, improving financial well-being, and boosting productivity, these innovative solutions will continue to revolutionise the construction industry.

About Louise Stewart

Louise Stewart is the Founder and CEO of ProjectPay, the trusted digital payments platform for the building and construction industry globally. Originally from Perth, Western Australian, her mission to solve the broken payment flows that result in widespread payment abuse of small businesses in project supply chains, whilst helping the sector to transition to Net Zero has led her on a journey around the world.