Construction Outlook: Risk management is key

June 1, 2022

It’s no secret that building-related industries are currently under pressure, now is the time to turn to data to help mitigate risk within the sector.

Our regular data series, which we provide to the New Zealand Hardware Journal, assesses the level of credit risk posed by the four business sectors most closely associated with the Construction & Hardware industry:

  • Residential Construction
  • Commercial Construction
  • Hardware, Building & Garden Supplies Retailing
  • Core Retailing


Below is the New Zealand Hardware Journal’s commentary:

Looking at the wider picture this month, armed with April’s data (see the charts below) and the knowledge that well over 200 construction companies are currently in liquidation – 96 so far this year alone – CreditWorks’ Alan Johnston reiterates the need for risk management to be right at the forefront of any business manager’s mind right now.

The latest building company to fail is Oceanside Homes in Tauranga, leaving suppliers and subbies out of pocket by at least $500,000.

“Should have seen it coming” is a common response after the event.

But Alan Johnston says there are warning signs that may help prevent potential creditors being caught out by situations like Oceanside’s.

They include the history of the company (Oceanside for example had only been going for a little over three years), director resignations, recent extensions of payment terms, and the state of the company’s DSO.

“As we know, the building industry is in the middle of a perfect storm at present, so we haven’t seen the end of these issues,” says Alan. “So merchants and credit suppliers must be vigilant at these times.

“Before you do business with a contractor, check them out thoroughly, or if it is someone who is on your books already, monitor their ongoing activity and credit exposure in the marketplace – circumstances may change, and not necessarily through their own actions.”

In this respect, CreditWorks has launched its CheckMate Credit Report tool. Available as a simple check on any New Zealand company, CheckMate should be of particular interest not only to sub-contractors but also those who are engaging the services of builders and other contractors.

CheckMate reports will show the company credit score, and the likelihood of failure in the next 18 months (as per our regular sector snapshots shown on these pages), as well as a raft of other useful information points, so it’s a cheap investment that may provide some peace of mind. Learn more about CheckMate here.

 


Now see the charts below for a visual explanation of the last three months’ risk profiles across our four chosen sectors.

The left axis indicates the % of a sector that is at risk. The bottom axis shows the % likelihood of failure over the next 18 months.

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