How to check your builder’s financials (and why your build contract matters more than a credit check)
Over the past 8 years, I've helped hundreds of Australian homeowners review their residential building contracts. When people reach out to me, one of their biggest fears is the risk of their builder going into liquidation halfway through construction.
And I agree, that’s a very valid concern. According to Australian Securities and Investments Commission data, construction company insolvencies climbed by 38 percent over the last 3 years. But behind those statistics are real families.
When you hear stories from people who have gone through a builder collapse, the instinct is to look for warning signs before you sign with any builder. It’s natural to want peace of mind that your builder's got the financial strength to get your build across the finish line.
Why checking builder credit ratings won't protect your build
When homeowners try to verify builder financial stability, they usually follow a familiar playbook:
They search the builder on their state licensing register
They ask the sales consultant whether the company's trading comfortably.
They ask if there is any commercial credit information available
None of these checks are bad to do, but they wont move the needle in protecting you.
Credit reports and licence registries only look backward. They tell you about bills that were paid or defaults that were lodged months in the past. They can't tell you if a builder took on five unprofitable builds last month, or whether their cashflow's about to collapse under rising material costs. More importantly, a financial check can't stop market pressure from hitting your project.
Most homeowners assume that if the builder looks financially solid today, their build's safe.
That's the false assumption.
The real risk isn't the builder facing pressure
When it comes to financial security on a build, here's what most people don't realise: your contract can't guarantee your builder won't face financial pressure. But it can protect you from carrying extra risk.
The threat that devastates homeowners isn't just that a builder runs into financial trouble. The real damage happens when the contract lets the builder shift that financial trouble straight onto your shoulders.
Residential building relies on cashflow. Builders order materials and hire subcontractors, then pay those bills when you pay your progress claims. When cash gets tight, struggling builders try to pull funds forward to cover previous jobs.
If your contract lets the builder claim money faster than they complete work on site, you end up paying for building stages that don't exist yet. If that builder goes into liquidation, you're not just left with an unfinished house. You've paid for frames, roofing, or joinery that wasn't ever installed.
The hidden danger in progress payments
This is where your building contract makes all the difference.
Most people assume that because their contract's an industry standard template from the HIA or Master Builders, the terms are automatically balanced. But industry standard doesn't mean safe. The risk isn't the template itself. The risk's in the details, the schedules, and the specific percentages your builder wrote into it.
Take the progress payment schedule for example. When I review contracts for clients, I frequently see schedules where 60 or even 70 percent of the total contract price's due before the home reaches lock up stage.
When you pay 70 percent of your build price for only 45 percent of actual physical work, you carry all the financial risk. If the builder slows down, disputes a stage, or enters administration, you've got zero protection and massive losses.
A quality build comes from a quality contract. When your progress payments match genuine site progress, your financial exposure stays low. Even if a builder faces extreme market pressure, the value of the home on your block equals what you've paid.
Understanding the contract is your superpower
Once you realise that the contract's your financial shield, the way you prepare for your build changes completely.
You stop relying on polite trust or backward looking credit checks. Instead, you use the contract to protect your cashflow before you hand over a single dollar.
The building contract's got surprising ways to avoid extra costs and delays, starting with three essential checks:
Confirm insurance is in place before paying a deposit
Home warranty insurance, known as domestic building insurance in Victoria or QBCC insurance in Queensland, is your safety net if a builder becomes insolvent. Yet builders often provide certificates that're months out of date, or fail to issue a certificate listing your specific property address before asking for your 5 percent deposit. In your contract, insurance's got to be active and verified before any money leaves your bank.
Keep progress payments aligned with real site progress
Look closely at Schedule 2. If your builder's loaded heavy payments onto early stages, negotiate them back into balance. Never pay for materials stored off site, and never approve a progress claim until you've physically inspected the property to confirm every single item in that stage definition's complete.
I can help with this as part of a Building Contract Health Check
Check your contract is genuinely fixed price
Depending on how your contract has been filled out, it can seem like it’s fixed price, but allowances quietly create financial strain that gets passed onto you during the Build. If a builder puts low estimates for siteworks or finishes, you'll be hit with price increases as soon as work begins.
As part of my Building Contract Health Check service, I help with negotiating better fixed pricing so your budget doesn't blow out.
Get protected before you sign
Running a background check on your builder is good, but it's only a preliminary step. It can't stop a builder from running into financial trouble, and it won't protect your savings if they do.
Real security doesn't come from hoping your builder never feels market pressure. It comes from having a contract that ensures you never carry their risk.
If you're about to sign a building contract and want to be sure your payment stages, insurance clauses, and special conditions actually protect you, that's why I created the Building Contract Health Check.
Through a detailed contract review, I look through every schedule and clause in your contract to show you:
Whether your progress payments match genuine site progress or leave you exposed
Which clauses allow the builder to pass unexpected costs or delays onto you
Exactly what to ask your builder to adjust before signing so you can build with confidence
Thanks for reading, and I'll see you in my next post!
Annelyse
Construction Management | M. Construction Law
Follow me @_buildtogether for daily tips on building and renovation contracts.
