CBPM 2025 · Vol. 2025, Issue 1

The Causes and Impact of Late Payments in The Construction Industry

Ayabulela Bongco and John Smallwood

Keywords: Blockchain, Late payment, Non-payment, Payment disputes

Abstract

Given that the South African construction industry is prone to late payments, and contractors experience a high level of late payment, non-payment, and insolvency, a study was conducted to investigate the causes of late payment, nonpayment, negative cash flow, and payment disputes that arise during construction, and to evolve a framework of interventions to mitigate these. The quantitative method was adopted due to the nature of the data required, and an 'introductory' letter was e-mailed to medium to large general contractor members of the East Cape Master Builders Association (ECMBA), which included the online survey questionnaire URL. Given the sample size of 67 and the 20 responses, which equate to a response rate of 30.0%, the findings cannot be deemed generalisable, but are indicative. The salient findings are: late payment is a significant issue; factors such as inadequate client's finance, and inadequate client capacity for processing payments contribute to late payment; delay in completion of activities, and negative cash flow occur due to late and non-payment, non-payment by clients result in payment disputes; clients' poor financial management and clients' withholding of payments contribute to non-payment, and blockchain technology with a smart contract has the potential to mitigate payment problems. Conclusions include: the extent to which factors result in late payments indicates that it is a multi-stakeholder issue in addition to being attributable to clients, and although blockchain technology and the use of smart contracts can mitigate payment problems as they enable every transaction, payment, and business interaction to be followed, they cannot be viewed as the panacea for all payment related problems. Recommendations include consideration of a 'project payment charter', which indicates the role of all project stakeholders, and their commitment in the form of signatures to the charter.