Late Payment and Nonpayment within the Construction Industry: Causes, Effects, and Solutions

Abstract

Small- and medium-sized construction companies in developing countries are most likely to suffer from the increasing global trend of late payment and nonpayment. This study aims to provide a better understanding of the effect of late payment by ranking the contributory factors and potential strategies to address payment issues as experienced by small- and medium-sized companies in Trinidad. The analysis of interviews and surveys undertaken confirms that the state of the economy and culture are two of the leading causes of improper payment in the construction industry. Views of small- and medium-sized contractors differed regarding the causes and effects of delinquent payment on their businesses. The findings suggest training in cash-flow management and speedy dispute resolution are critical for the survival of the most vulnerable in the industry. This research contributes to an understanding of the appropriateness of solutions geared at penalizing delinquent payers or measures to protect unpaid contractors. By incorporating cultural differences into the debate on legal and technical measures to address late payment, solutions are offered to minimize the insolvency rate of small- and medium-sized construction firms. The proposed stratified solutions by company size are not only useful to comprehend late-payment and nonpayment issues, but they also highlight strategic improvements to the management of cash flow and the practicality of payment mechanisms.