Building a Better Payment System

The world depends on the construction industry to design and build the roads, buildings, power systems, and other infrastructure that make our modern way of life possible. But it takes more than skilled laborers, towering cranes, and advanced project management systems to make these projects successful.

Behind the scenes, construction companies operate in a financial landscape that challenges their ability to make and receive payments in a safe, timely, and efficient manner. Faced with everything from staffing shortages and delayed payments to the perpetual risk of fraud, industry members have been on the hunt for ways to improve profitability and efficiency, and mitigate fraud.

The Construction Industry’s Financial Pain Points

A construction company’s profitability and success can be impacted by factors that go beyond its ability to deliver projects on time and on budget. The back offices of design and construction firms are grappling with:

• Payment delays — It currently takes more than three months, on average, for construction businesses to collect payment on their invoices. That more than doubles the recommended 45-day threshold for Days Sales Outstanding (DSO) as advised by construction cost accountants to maintain strong cash flow and good credit management. Slow payment contributes to the rising cost of construction, with some contractors increasing their bids by up to 10% to compensate for payment delays.
   
• Slim margins — Not only must construction companies wait longer to be paid, but they also profit less on every dollar they are paid because of the low margins in the industry. Finding new ways to boost income and reduce overhead expenses can make it easier to secure project financing, manage cash flow and mitigate other financial risks.
   
• Staffing shortages — Labor struggles continue to strain the construction industry, and it’s not just a lack of skilled tradespersons in the field. The professional staff needed to fill back-office jobs are also in short supply. Understaffed accounting departments have less time to spend checking invoices, tracking approvals, and managing other accounting functions, particularly in growing companies.
   
• Billing/payment complexity — The flow of information between the many parties involved in a construction project can be difficult to track. That includes billing and payment. General contractors, subcontractors and suppliers are all seeking improvements in their accounts payable (AP) and accounts receivable (AR) processes.
   
• Payer/employee choice — Not every supplier can wait 90 days for payment, nor does every employee have a bank account for the direct deposit of a paycheck. That is why construction firms increasingly seek flexibility in how they make payments. The challenge is finding alternatives that do not further complicate AP and payroll processes.
   
• Fraud risks — The construction industry continues to be a target for fraud. No matter how well protected a business may feel from common payment schemes, scammers will stop at nothing to take advantage of vulnerabilities in a payment system.

All Roads Lead to a Digital Back Office

A major shift is taking place in how bills are paid. And it’s not just consumers who are setting their checkbooks aside. An estimated 50% of business-tobusiness (B2B) payments no longer involve paper. CommercePayments® has identified four trends that explain the realities driving this migration away from paper and the digital back offices being created to accommodate it. All have important implications for the construction industry — especially participants that have so far resisted efforts to change.

Trend #1: Use of Electronic Payments Is Growing

Companies continue to move toward electronic payments. We witness it every day. Card payments, as well as Automated Clearing House (ACH) payments — electronic fund transfers made between financial institutions across the ACH network — are netting the most gains. CommercePayments® indicates that companies with annual revenues exceeding $500 million are leading the way, but smaller companies are also realizing the benefits of digital payment systems.

Trend #2: Card Acceptance in the B2B Community Is Accelerating

Not every business is currently equipped to accept card payments, but that is changing. Thanks to virtual cards, prepaid expense cards and other innovations, the variety and number of businesses now accepting electronic payments are growing. Early adopters in the office supply and equipment industries have been joined by those in computer, shipping and other sectors. Uptake is also increasing in construction, consulting, and other industries that previously resisted paying by card. As companies realize the benefits of card payments, these numbers will continue to climb.

Trend #3: Automation Resolves Unique Payment Needs More Easily

Large construction projects often require complex reimbursement and payment processes. Even smaller projects may involve dozens of subcontractors, materials suppliers and other vendors — all of whom desire payment quickly. Experience suggests that virtual cards, single-use cards and other automated payment solutions can streamline processes that formerly got clogged with invoices that required nonstandard payment methods.

Trend #4: Companies that Automate Their AP function Reap Multiple Time- & Cost-Saving Benefits

Organizations that invest in AP automation can significantly cut their cost-per-invoice. By eliminating manual tasks, automated AP processes reduce labor needs and provide greater visibility into a company’s financial data, which can lead to everything from better decision-making to improved cash flow. Automation also saves physical storage costs and auditing time. The businesses with the most to gain are those that still pay most invoices using paper-based methods.

Conclusion

As the construction industry continues to navigate financial complexities, digital payment systems offer a promising path forward. By embracing automation and electronic payments, companies can not only streamline their processes but also safeguard against delays, fraud, and rising costs. For those ready to modernize, these digital tools provide a competitive advantage — one that makes every project more profitable, resilient, and future-ready.