When the upturn comes, construction SMEs will not have the liquidity they need to wait for their payments to trickle down the supply chain.
That’s the warning from ProjectPay in report funded by government via Innovate UK.
ProjectPay’s report, which has now been delivered to ministers, highlights that the economic impact of the building boom that the government is trying to stimulate could be devastating for the sector if insolvency rates are not addressed. It draws parallels with Australia in 2024, when government investment caused insolvency rates to skyrocket to their highest rates on record, creating a ‘profitless boom’.
The report says: “The [UK] construction industry is burdened by outdated financial models and banking structures that fail to address its unique cashflow challenges or understanding of unique-to-construction payment risks. Many small businesses in the sector are unable to access low cost affordable working capital and as a result find themself stuck in a high interest expense debt trap.
“Outdated banking products, such as project bank accounts (PBAs), were designed to secure and speed up payments for subcontractors but have proven inadequate due to them worsening working capital shortfalls, complexity, high administrative costs, and limited protection for lower tier subcontractors.
“Some companies have tried to answer this problem by simply digitising the payments process, however, digitising the existing dysfunctional payment flows and financial model in the sector does not speed up payments and certainly does not offer any protections from financial losses suffered by subcontractors when businesses above fail.
“The UK government needs to learn the lessons from other jurisdictions, such as the Australian government that overstimulated the construction sector with government funds to unleash a building boom having not addressed the payments mismanagement and payment default risks in the sector, (this was despite repeated industry warnings) creating a profitless boom that has devastated the Australian building sector. With record high builder insolvencies, financial misconduct enabling widespread fraud in the sector and huge financial losses for Australians.

“It is expected in the UK that small builders and specialty subcontractor’s already dire cashflow position will be hit harder from April with new taxes coming into effect, increasing insolvencies in the sector.”
ProjectPay is a finance technology platform that is seeking to be adopted by the UK construction industry as a solution to late payments. It is already being used on government projects in Australia and is being rolled out on public projects in the USA. It was set up by Louise Stewart in Australia after seeing first-hand the problems suffered by her husband’s subcontracting business. She is a former chair of the Australian Subcontractors Association and was involved in setting up PBAs in Australia.
In the UK, ProjectPay is partnered with Lloyds Bank.
It is not just project bank accounts that have failed to offer protection to subcontractors, the report says. Government prompt payment initiatives and reporting requirements have also failed.
The ProjectPay report asserts that the collapse of ISG last year made a mockery of payment performance reporting. ISG was ranked among the industry’s very best payers, when in reality subcontractors were owed large amounts and were battling to get paid.
The report explains that just digitising payments will not solve the problem, that the industry is burdened by outdated financial models and banking structures with many small businesses unable to access low cost or affordable working capital
The report UK Construction Payments: Solving cashflow shortfalls in the construction industry using digital payments with embedded finance (March 2025) is available to download via projectpay.co.uk.
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