This article is sponsored by AvidXchange.

Industry experts anticipate sustained challenges in construction throughout 2024, resulting from continued supply chain bottlenecks, rising costs, and high interest rates. Although each of these issues has seen improvements recently, a full recovery isn’t expected in the near term.

This article examines three of the macro influences impacting today’s construction market and explores what construction businesses can do to manage the associated risks. We’ll also look at how technology is coming to their aid and delivering efficiencies, better visibility, and a competitive edge the market can’t afford to do without.

Skilled Labor Scarcity Tightens the Grip on the Construction Industry

According to the National Association of Home Builders, the construction industry needs to attract 723,000 new workers each year to meet demand. The number of construction sector jobs open each month is between 300,000 and 400,000.

The construction industry is currently grappling with a labor shortage due to a combination of demographic shifts, educational gaps, and economic fluctuations. An aging workforce, coupled with an increased number of retirements during the pandemic, has left a void that isn’t adequately filled by younger workers.

Limited emphasis on skilled training and education has also contributed to the shortage of qualified construction professionals. Safety concerns, insufficient compensation, and the absence of robust apprenticeship programs further constrain the labor pool.

With fewer people to do the work, construction companies are forced to do more with less while addressing these multifaceted recruitment challenges.

Project Kickoffs Delayed by Product Shortages

In addition to labor shortages, construction companies also face a scarcity of necessary supplies — 63% of construction companies cited project delays due to availability and supply chain issues as a concern in 2023.

Supply chain challenges in 2023 were impacted by several issues, from machine part shortages to shipping cost increases. Additionally, the U.S. supply chain is still recovering from a “long-term hangover” resulting from the pandemic.

When builders don’t have what they need, work can’t get done. It creates a lot of wait-and-see across the industry, as companies seek new strategies for securing products.

Pricing Volatility Contributes to Risks

Although some materials like lumber decreased in price in 2023, other materials have seen a sharp increase. For example, concrete products were up 14.8%, and adhesives and sealants were up 13.4%. Overall, construction prices grew 4.9% from 2022 to 2023.

Pricing volatility creates a domino effect throughout the industry — suppliers can’t commit a price to a contractor because their manufacturer can’t commit to a price and delivery timeframe. And on it goes, making it difficult for companies to give customers accurate bids.

It’s becoming increasingly likely that the price of goods today is wildly different from the price they’ll be when they are secured and when the work is ultimately billed, which can put construction companies in a difficult place and potentially lead to unhappy customers.

Supplier Relationships Become Vital

The entire construction industry is playing a game of “hot potato” with risk. Amidst supply chain uncertainty, who is going to manage the associated risk? No one wants to be left holding the hot potato.

Rather than accepting a purchase order for goods when they can’t predict their availability or future price, companies are asking for what they need – scope and specs – and for a place in the queue for future shipments. Cost and availability remain unknown until products become available, so many companies are leveraging cost-plus contracts, enabling contractors to transfer risk to owners who can better afford them.

Many construction companies are turning to age-old construction best practices, like building trustworthy relationships with suppliers, to help address supply chain challenges. The most reliable way to win suppliers’ loyalty is to be prompt with payments.

The A/P Department Feels the Pressure

Paying bills on time has never been more important, especially for construction companies. Yet, invoicing and payment tasks are time-consuming and costly. Many construction businesses have never updated their accounts payable (A/P) department and still rely on outdated paper-based processes. And just as construction workers are in short supply, so are those who work in the back office.

A/P departments at construction companies deal with a high volume of invoices from suppliers, vendors, contractors, and subcontractors. There’s pressure to pay quickly, but that can be difficult when invoice approvers are scattered across multiple jobsites.

Construction is also a space full of complexities like partial deliveries and back orders that are intensified in today’s unpredictable environment. This adds to the A/P department’s stress levels and workloads.

Automated A/P Can Help in Volatile Times

By replacing manual, error-prone A/P processes with an automated, cloud-based A/P solution, construction companies can better manage their procure-to-pay process from anywhere, at any time without the need to add headcount.

Comprehensive A/P solutions seamlessly integrate with existing accounting software and systems and provide real-time visibility into invoices, allowing teams to track committed costs, change orders, and invoiced costs (verifying with three-way matching) all the way through to proof of payment quickly and easily.

Automated A/P solutions also empower construction companies to create goodwill with suppliers by sending prompt payments, offering the speed, convenience, and security of electronic payments. Electronic payments also deliver the added benefit of fraud protection, an especially critical benefit to construction companies as they deal with escalating rates of check fraud and cyberattacks.

Controlling cash flow is especially critical in today’s construction environment. To substantiate costs, construction companies need to see what’s been billed and what’s been paid. That data must be easily accessible, so they have it when they need it. Because automated A/P systems store invoice and payment data in one easily accessible platform, construction teams can set parameters and run reports with the data they need, including proof of payment. There’s no more waiting on bank statements and spending hours or even days cross-referencing for the info they need. Reports can be delivered within minutes.

Rich data and visibility offer immense benefits in unsteady times like these, including:

• Creating efficiencies so companies can work smarter
• Freeing up time for A/P staff to focus on value-add activities
• Providing historical data to leverage in negotiations
• Simplifying reporting
• Reducing costs of manual A/P processes and teams
• Speeding payments
• Improving data management
• Protecting against fraud
• Simplifying auditing

Automating A/P in construction companies enhances efficiency by streamlining invoice processing, reducing errors, and accelerating payment cycles. This not only saves time and resources but also improves financial accuracy, enhances vendor relationships, and allows the company to focus on core construction activities, ultimately boosting overall productivity and profitability.

Running a smart business depends on the financial precision, flexibility, and efficiency that automation provides.