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Supply chain shortages and delays are among the challenges most often cited by construction firms, yet there’s another pressing concern that’s just as daunting: slow payments. The construction industry was valued at $1.589 trillion last year, but slow payments cost it $136 billion, according to Rabbet—nearly 10% of avoidable costs.

Late payments can wreak havoc on entire organizations, slowing business and significantly straining relationships with customers, suppliers and vendors. Consistently delayed payments can also damage a company’s reputation and brand, putting its business at risk when customers and contractors decide to go elsewhere.

In 2022, construction companies can ensure speedier payments and solidify business relationships by modernizing antiquated payment processes and embracing technology to create efficiencies and ease workloads.

Understanding Why Payments are Late or Delayed

The construction industry is notorious for late payments largely due to its complex structure and inefficient invoice and payment processes. The first step in speeding up payments is to examine the processes used for submitting invoices and making payments. If they are manual and paper-based invoices, it is likely that the firm’s finance team spends a lot of time entering invoice data and chasing people throughout the company—and often on jobsites—to secure necessary approvals.

These processes are mission critical, but done manually, they are slow, less secure and prone to errors. As a result, payments to vendors and suppliers are often late or even incorrect. In fact, while the average payment term is net 30, it takes an average of 83 days for construction companies to receive payments right now, according to Levelset’s National Construction Payments Report. These delays strain cash flow and contributes to a continual cycle of delays throughout the industry.

Automation is Essential for Speeding Up Payments, Freeing Time for Better Use

Cloud-based and automated accounts payable (AP) solutions that integrate with construction companies' existing accounting software and systems can replace cumbersome manual invoice and payment tasks, in turn speeding payments and freeing staff for more strategic work.

Invoice management solutions automate invoice data entry and approval processes, leveraging OCR and advanced technology to sync and speed the work. Invoices are automatically acquired, coded and sent to their appropriate approval workflows. Once approved, they flow directly into the company’s accounting system for automated payment processing.

Automated bill payment software can then be used to accelerate payments by reducing the need for envelopes, stamps and snail mail that add to the length of time it takes for vendors to receive payment. Once payments are approved, they are paid electronically, quickly and safely.

And construction companies can offer their contractors and vendors the flexibility to choose a preferred method of payment, including Automated Clearing House and Virtual Credit Cards, both of which are executed faster and more securely than paper checks, and can better prompt accurate payment. Additionally, complete automation solutions also provide construction firms with document management and reporting benefits, enabling them to better manage cash flow and budget.

Ease the Need for Additional Finance Staff

There is another issue contributing to payment delays in construction—a labor shortage. The construction industry has been dealing with a shortage of skilled craft workers, as well as salaried employees.

The Great Resignation has created a two-fold staffing challenge for the finance departments at construction firms. Many are having difficulty hiring new people to help take on growing workloads and they are also finding it increasingly tough to hang on to their existing talent.

Short-staffed AP departments mean more work for existing staff who are forced to take on additional workloads that continue to grow as firms win new projects. There's a growing temptation for staff to move onto other jobs, for instance moving to companies who have automated the often tedious and time-consuming work associated with manual or paper-based AP processes.

Automating their AP empowers construction firms to hold on to their employees, replacing time-consuming manual invoice and payment processes so that staff can focus on more strategic work like vendor relations or bidding new projects. Not only does automation contribute to greater job satisfaction, but it also helps AP teams do more with less. Some teams can avoid additional hiring by relying on automation.

Investing in Technology to Create Efficiencies and Speed Payments

In all, automation has the ability to make finance teams happier and more productive, trimming the time it takes them to do their work so that they can add greater value to their organizations. Furthermore, automating time-consuming, error-prone manual AP tasks also benefits the business by improving cash flow, providing better visibility and strengthening important vendor relationships by more efficiently sending payments.

But what’s perhaps the biggest benefit provided by automation? Getting a leg up on the competition.


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