Waiting to Be Paid: A Literature Review on Receivables, Construction Payment Problems, and Process Change
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Master of Business Administration Program, Aspen University
BUS 799: Graduate Capstone
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Waiting to Be Paid: A Literature Review on Receivables, Construction Payment Problems, and Process Change
A capstone literature review should do more than summarize sources; it should show what is known, what is disputed, and what the project can learn before touching the organization's data. This review supports a project to reduce days sales outstanding at Keystone Electric, the composite electrical subcontractor described in the proposal, from 71 to 50 days. It is organized around four questions: why slow collections matter, why construction subcontractors in particular wait to be paid, which improvement methods fit the problem, and why process changes often fail to stick.
Receivables as Lending
When a firm delivers work before it is paid, it is lending to its customer. Petersen and Rajan (1997) studied trade credit, the credit firms extend to one another through delayed payment, and found that firms use more trade credit when credit from financial institutions is unavailable, and that suppliers with better access to credit extend more of it. The implication for a subcontractor is uncomfortable: when general contractors are short of bank credit, they may lean on their subcontractors by paying slowly, and subcontractors end up financing projects they do not own. Keystone's reliance on its credit line to cover payroll while waiting to be paid fits this pattern. Receivables, in this view, are not a bookkeeping balance but a loan Keystone did not choose to make.
Collection Speed and Profitability
Two large studies link receivables to profitability. Using data on 1,009 large Belgian nonfinancial firms from 1992 to 1996, Deloof (2003) measured trade credit and inventory policy by days of accounts receivable, accounts payable, and inventory, and concluded that firms holding fewer days of receivables and inventory tended to be more profitable, so managers had room to raise returns by shortening both; he also found that less profitable firms took longer to pay their own bills. García-Teruel and Martínez-Solano (2007) followed a panel of 8,872 Spanish SMEs over 1996 to 2002 and, after testing for the possibility that profitability drives working capital rather than the reverse, concluded that managers can create value by reducing inventories and the number of days accounts are outstanding.
Both studies are correlational and set outside the United States and outside construction, so they cannot show that cutting Keystone's receivable days by itself will raise its profit by a predictable amount. What they establish is a consistent association across thousands of firms, and the second study's attention to reverse causation strengthens it. The evidence supports the project's premise; it does not supply its numbers. Keystone's benefit will be calculated from its own interest costs, not borrowed from these studies.
Why Construction Payment Is Slow
Construction adds its own causes. Examining liquidators' reports and court cases in New Zealand, Ramachandra and Rotimi (2011) found that trade creditors, including subcontractors, suffered payment delays and losses when developers and contractors failed, which shows how problems pass down the payment chain. In a later survey of consultants, head contractors, and subcontractors, the same authors used factor analysis to group the reported causes into five clusters, covering contract terms, how financially sound the parties are, disagreements, weak payment procedures, and the way one party's failure spreads to others, and respondents treated financial soundness as the core problem (Ramachandra & Rotimi, 2015). Their recommended remedies, securing financial security at the start of a project and checking the financial status of key participants, point to steps Keystone could take before signing future subcontracts.
For this project, the useful distinction is between causes a subcontractor can influence and those it cannot. The financial strength of a general contractor and the terms of a signed contract are largely outside Keystone's control in the short run. But process shortcomings, such as late or incomplete payment applications, and disputes, such as those over undocumented change orders, arise partly from the subcontractor's own practices. The project will therefore focus its measurement on these controllable causes while recording the others.
Methods for Improving a Process
The project will use Six Sigma's define, measure, analyze, improve, and control sequence. Linderman et al. (2003) argued that Six Sigma's results depend partly on the goals it sets, specific and challenging targets expressed in measurable terms, and on a structured method that guides teams toward them, drawing on goal-setting theory from psychology. That argument suits Keystone, where a clear target of 50 days exists but the organization lacks a disciplined way to pursue it. A limitation is that Six Sigma was developed for repetitive manufacturing processes, and billing is repetitive only in part; each project has its own contract, general contractor, and documentation requirements. The analysis will therefore segment data by general contractor and contract type rather than treating all invoices as one process.
Why Changes Fail to Stick
Process improvements often fade once the project team moves on. Kotter (1995), drawing on experience with organizations attempting major change, identified common errors, including failing to establish a sense of urgency, not creating a powerful guiding coalition, undercommunicating the vision, not removing obstacles, not planning for short-term wins, declaring victory too soon, and not anchoring changes in the organization's culture. Several apply directly. Keystone's project managers see billing as an administrative task that competes with field work; without urgency and visible early wins, a new billing cutoff will slip. The project's change plan will therefore include a guiding group of the controller, two respected project managers, and an owner, and will report early results from the pilot projects.
Gaps in the Literature
The review found little published research on collection practices among U.S. specialty subcontractors, and none that tests specific interventions such as billing cutoffs or change order sign-off rules with before-and-after data. Most construction payment research is from other countries with different payment legislation. This gap means the project must rely on its own data for estimates, and its results, reported carefully, could be useful to other subcontractors.
Conclusion
The literature supports treating slow collections as unplanned lending that ties up capital, links fewer receivable days with higher profitability across thousands of firms, explains why construction subcontractors are exposed to payment delays, and offers a structured improvement method and warnings about sustaining change. It does not provide tested interventions for U.S. subcontractors, so the project's next step is to measure Keystone's own process.
References
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of Business Finance & Accounting, 30(3-4), 573-588. https://doi.org/10.1111/1468-5957.00008
García-Teruel, P. J., & Martínez-Solano, P. (2007). Effects of working capital management on SME profitability. International Journal of Managerial Finance, 3(2), 164-177. https://doi.org/10.1108/17439130710738718
Kotter, J. P. (1995). Leading change: Why transformation efforts fail. Harvard Business Review, 73(2), 59-67.
Linderman, K., Schroeder, R. G., Zaheer, S., & Choo, A. S. (2003). Six Sigma: A goal-theoretic perspective. Journal of Operations Management, 21(2), 193-203. https://doi.org/10.1016/S0272-6963(02)00087-6
Petersen, M. A., & Rajan, R. G. (1997). Trade credit: Theories and evidence. Review of Financial Studies, 10(3), 661-691. https://doi.org/10.1093/rfs/10.3.661
Ramachandra, T., & Rotimi, J. O. B. (2011). The nature of payment problems in the New Zealand construction industry. Construction Economics and Building, 11(2), 22-33. https://doi.org/10.5130/ajceb.v11i2.2171
Ramachandra, T., & Rotimi, J. O. B. (2015). Causes of payment problems in the New Zealand construction industry. Construction Economics and Building, 15(1), 43-55. https://doi.org/10.5130/ajceb.v15i1.4214
How this BUS 799 Module 2 example is structured
Aspen's catalog describes BUS 799 as an individualized, work-related capstone. Aspen does not publish module deliverables, so check your classroom for the exact prompt. This example organizes the literature around the project's questions, reports each source accurately, appraises limits, connects findings to project design and identifies gaps.
BUS 799 Module 2 questions, answered
What does BUS 799 Module 2 usually ask for?
Work in this part of a graduate business capstone typically asks for a literature review that grounds your project in research and shows how the evidence shapes your approach. Aspen does not publish module deliverables, so your classroom's instructions govern.
How do I make a capstone literature review analytical?
Organize it by questions your project must answer, appraise each source's sample and limits, show how findings change your design and name the gaps your project addresses.
Does reducing receivable days increase profitability?
Large studies of Belgian and Spanish firms found that fewer days of receivables were associated with higher profitability, though the evidence is correlational and from other countries and industries.
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