Late Payments in Construction and Installation: A Growing Challenge for EU Contractors

Late Payments in Construction: Causes, Impact, and Digital Solutions for Contractors

Late payments remain a persistent problem in the construction and installation sectors, particularly in the EU. With average payment terms exceeding 90 days—significantly longer than in other industries—contractors face major challenges that affect cash flow, delay projects, and threaten business growth. In this article, we explore the causes of delayed payments, their impact on contractors, and practical solutions to address this urgent issue.

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The Extent of Late Payments in EU Construction

1. Payment terms exceed 90 days

In the European construction sector, late payments are among the longest of any industry. On average, invoices are settled 94 days after issuance—far beyond the standard 30–60 days seen in other sectors. This leads to major cash flow problems, especially for small and medium-sized enterprises (SMEs), which make up 15.4% of the EU’s non-financial business sector.

2. Widespread impact across member states

Late payments are a systemic issue across Europe. A recent report shows that 47% of EU businesses face financial difficulties due to delayed payments, with construction among the most affected sectors. Countries like Spain and Italy experience particularly severe delays, due to complex supply chains and local business practices.

3. Financial pressure on SMEs

Small contractors often lack the financial reserves to absorb long delays, making them particularly vulnerable. Many are forced to take out high-interest loans or postpone important investments just to stay afloat while waiting for overdue payments.

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Why Do Late Payments Happen?

Several factors contribute to the problem:

• Outdated payment methods: Many companies still use manual systems like checks or wire transfers, which are slow and error-prone.
• Complex approval chains: Payments often require multiple layers of approval—from developers to financiers to general contractors—creating bottlenecks.
• Unequal power dynamics: Larger companies often impose unfavorable payment terms on smaller subcontractors, who have little room to negotiate.

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The Impact on Contractors

Late payments have far-reaching consequences:

• Cash flow strain: Contractors must cover materials and labor upfront, often waiting months to get paid—leading many to rely on expensive credit.
• Project delays: If subcontractors or suppliers aren’t paid on time, projects can stall, damaging client relationships and reputations.
• Competitive disadvantage: Businesses unable to invest in new technologies or sustainability initiatives fall behind more agile competitors.

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Solutions for Contractors

While systemic changes are needed, contractors can take proactive steps to mitigate the effects of delayed payments:

1. Adopt modern payment methods

Switching to faster payment systems can significantly reduce delays:

• SEPA Instant Transfers: Allow real-time payments across Europe, speeding up access to funds.
• A2A Payments (Account-to-Account): Simplify transactions by cutting out intermediaries and reducing processing time.
• Milestone-based payments: Link payments to specific project stages to ensure timely disbursement.

2. Increase transparency

Clear communication on payment terms can prevent disputes:

• Use digital platforms that offer real-time invoice status updates.
• Share detailed payment schedules early with all stakeholders.

3. Simplify invoicing and approvals

Streamlining the billing process can shorten payment cycles:

• Automate invoice submission and approvals with digital tools.
• Ensure all required documentation is ready in advance to avoid delays during review.

4. Use escrow services

Escrow accounts hold funds securely until agreed milestones are met—ensuring both parties fulfill obligations before payment is released.

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How Nemi Can Support Contractors

At Nemi, we understand the financial pressures contractors face due to late payments. That’s why we offer integrated payment solutions specifically designed for the construction industry:

• Integrated payment technology: Nemi’s platform incorporates modern payment methods like SEPA Instant Transfers and A2A payments directly into your workflow—for faster payouts and better cash flow management.

• Milestone-based payment systems: Our tools allow you to set up milestone-based payments tied to project progress—reducing uncertainty around when you’ll get paid.

• Transparency features: Nemi’s technology provides real-time insights into the status of your invoices and approval workflows—so you always stay in control.

By integrating Nemi’s cutting-edge payment technology into your workflow, you can reduce delays and improve your company’s liquidity.

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Sources:

• European Builders Confederation (EBC), Annual Report 2024 on Late Payments
• FIEC EU (European Construction Industry Federation), Priorities – Late Payment
• CEPS (Centre for European Policy Studies), EU Payments Observatory 2024 Annual Report

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