Tradies face temporary cash flow crisis as industry shutdown in Victoria continues

Tradies and subcontractors in parts of Victoria are facing a temporary cash flow crisis as the two-week ban on construction work continues to wipe out activity in the industry.

The Victorian government enforced the shutdown from midnight on Monday in metropolitan Melbourne, the City of Ballarat, the City of Greater Geelong, Surf Coast Shire and Mitchell Shire.

All construction work must halt with the exception that workers can respond to an emergency, or perform essential or urgent work.

Businesses that support trades professionals and construction companies, including job management and payment platforms, have already noticed the effects of the restrictions.

David Holmes, chief executive of the job management software provider Fergus, says the shutdown is hitting subcontractors hard.

“The shutdown stretches out the time to being paid, payment times increase and for smaller contractors that can be quite painful,” Holmes tells SmartCompany.

Holmes says previous lockdowns in NSW and New Zealand show that industry shutdowns make the volume of jobs and invoicing “fall off a cliff”.

“The amount of new jobs going into our system and the amount of invoices going out just stops,” he says.

Victoria has a high share of construction industry enterprises and industry revenue, which according to IBISWorld, outweighs the state’s share of the national population.

Together New South Wales, Victoria and Queensland account for about 80.5% of construction businesses and 80.9% of revenue.

Guy Saxelby, chief executive of the trades payment platform Earlytrade, says Victoria’s construction shutdown shows how much the industry overlaps with other supply chains.

He says subcontractors and head contractors working on closed Melbourne sites and projects are also working in other industrial sectors and other cities.

“Their cash flow gets cut off by the sudden shutdown in Melbourne and their company can’t adequately service other jobs in New South Wales, Queensland or South Australia for example,” Saxelby tells SmartCompany.

Between Monday and Tuesday, Earlytrade recorded a 150% spike in demand for cash flow not only from subcontractors in Melbourne.

“The shortfall in cash flow for subcontractors doesn’t just stop in Melbourne or in construction. The ripple effect hurts the broader industrial sector and spreads into Sydney and beyond,” Saxelby says.

But industry players say the cash flow crisis that’s affecting subcontractors will be a temporary challenge.

Stuart Tucker, chief customer officer at hipages Group, says Victoria’s 2020 lockdown shows tradie jobs will pick up after restrictions ease.

Hipages, which is a job marketplace that helps consumers find local trades professionals, expects the industry to rebound like it did after the Victorian lockdown last year.

“While there was an initial drop in tradie jobs posted on hipages during this time, tradies went on to experience a mini-boom when restrictions eased,” Tucker tells SmartCompany.

The chief executive of Fergus agrees that the halt in activity will be short lived, and forecasts activity to return to normal levels four weeks after restrictions ease on October 4.

“For a two-week lockdown, we would expect that things will normalise within four weeks after the lockdown knocked 80% of jobs out of the system,” Holmes says.