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Disbursements

Deep Dive: Fixing Construction Payments Problems

The construction industry frequently uses physical paperwork that can create obstacles when paying contractors and subcontractors. The following Deep Dive highlights common pain points in the construction payment process, and the emerging players that are cutting through the red tape by adding new payment tools to the market’s toolbox.

For the 1.5 million construction workers employed in the U.S., handling day-to-day business requires more than just a standard toolkit. These professionals need access to payment tools that enable them to send and receive payments, and without the longstanding delays that can impact their ability to complete projects.

Problems processing invoices can often be the first domino to fall, impacting the work processes of contractors, laborers and everyone in between. When invoice processing gets delayed, the following steps do, too.

These issues are well-documented across the industry. A recent analysis found that the average number of days a bill goes unpaid — days sales outstanding (DSO) — for the construction market is approximately 70. This lengthy wait can create frustrations for contractors, subcontractors and other workers, and can also complicate companies’ efforts to retain workers, hire personnel for more demanding projects and invest in equipment and other resources.

These are challenges that several players in the space are working to address, rolling out more efficient solutions that aim to reinvent the construction payments wheel.

Invoices at Work

Invoices in the construction trade are often paper-based, amounting to challenging stacks of pages including those outlining the labor, required legal forms and compliance documents, among many others.

Relying on physical documents can create a different kind of work hazard for construction professionals. One small error, such as an incorrect date or a missed detail, could throw a wrench into contractors’ plans by causing a payment delay. To address these inefficiencies, several companies are investing in digitizing the construction invoice process and streamlining payment operations.

One such company is Net30, a startup founded by a pair of construction professionals. The company offers a cloud-based platform enabling construction companies to process invoices electronically and disburse online payments directly to contractors’ bank accounts. The service also allows subcontractors to electronically sign documents such as lien waivers, which are often a required part of the invoice.

A similar service is offered by lienwaivers.io. As CEO Geoff Arnold explained to PYMNTS last year, the lien waiver process often leads to a “chicken-or-an-egg problem” in which payees do not want to relinquish their lien rights until they have been paid, and payers are often required to collect these documents to financially protect themselves.

The lienwaiver.io solution generates a required lien waiver and delivers it for electronic signature. The system, which is available on mobile and desktop devices, takes a payment and holds it in escrow until the necessary signatures are gathered. The payments are then released and disbursed to contractors’ bank accounts.

A Building Workforce

Construction industry concerns aren’t something companies and payers can afford to ignore. The field — and its voice — is growing, with both recent data and long-term projections painting a healthy picture.

The latest figures from the U.S. Census Bureau indicate that construction spending levels reached $1.273 trillion in February 2018, up from $1.272 trillion the previous month. Meanwhile, analysis by the Bureau of Labor Statistics (BLS) projects the job outlook for construction workers is poised to grow at a rate of 12 percent between 2016 and 2026, faster than the average for all occupations.

These trends indicate that the construction market is facing an influx of workers and growth in spending. All told, it is ripe for payment innovation.

Smartphone Support

As the market grows, so, too, does the demand for more efficient construction payment solutions. Providers are rushing to meet that demand by introducing a slew of new payment tools to construction workers’ toolkits.

One such payment option was released by multi-platform progress payment software firm Payapps, which debuted a mobile solution for small, medium and large construction projects that includes features like automatic email reminders and workflow management tools. Compatible with existing enterprise resource planning (ERP) and finance services, it enables subcontractors to prove their work is complete by snapping and sharing photos in the system, among other features.

Cloud-based payments as a service (PaaS) provider PayStand also offers a smartphone-friendly mobile app, which allows for remote payments acceptance at job sites by swiping credit cards or enabling check deposit. Customers can also use the service to enable automatic payment and recurring payments for a fixed or variable amount, further streamlining the payment process.

These payment tools provide one of the most valuable services for professionals: slashing through the red tape of construction payment bureaucracy.

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