In the $1.8T construction industry, payment delays to contractors and subcontractors can have a crippling effect on the timely completion of projects. Karin Rush and Linnet Phoenix of DPR Construction explain how virtual and purchasing card technologies keep its network of 4,800 subcontractors from avoiding financial hardship while keeping payment flows secure in the latest Securing B2B Payments Report.
The U.S. construction market is on a roll, and recent data suggests it is unlikely to slow. The market is on track to record a compound annual growth rate (CAGR) of 4.9 percent from 2019 to 2023, reaching a value of $1.8 trillion. Construction firms looking to succeed in this growing market and turn a profit must complete their projects on time, which means access to steady cash flows is crucial. Businesses that fail to make payments to suppliers or vendors in a timely fashion risk alienating partners and stalling projects.Â
Having the right payment tools is therefore as important as having the right trucks, saws and jackhammers. Such solutions help construction firms resolve balances while providing their business partners with crucial access to working capital. This is why some construction firms â such as Redwood City, California-based DPR Construction, which has two dozen offices in the U.S. and divisions in the Netherlands, Singapore and South Korea â have embraced offerings like virtual and purchasing cards that expedite the payment workflow.Â
DPR works with a vast network of subcontractors, suppliers and vendors, and making on-time payments is essential to maintaining strong relationships with these partners and keeping projects on track. PYMNTS recently spoke with Karin Rush, DPRâs leader of shared services, and Linnet Phoenix, head of corporate AP, to better understand how virtual and purchasing cards can build efficiencies in the construction market. The pair explained how these offerings keep suppliers satisfied and DPRâs partners safe from fraud.Â
âVirtual cards move payments quickly,â Phoenix said. âWe can email a remittance advice to the vendor and they will have all the information to easily reconcile payments on their system.âÂ
Making Virtual Cards A RealityÂ
DPRâs vendors are presented with the option to receive payment via virtual cards once they complete the onboarding process. Approximately 30 percent to 40 percent of the companyâs vendors opt in, proving the featureâs popularity.Â
âChecks take longer to reach vendors,â Phoenix said. âWith the virtual card, they receive an email that includes all the data they need to post the payment.âÂ
DPR has used virtual cards for five years, and their faster delivery mechanisms are likely to fuel greater uptake within the construction market.Â
âItâs probably the direction [that] vendors are going in,â she said. âEvery time we have a new vendor, we send them the package and they have the option to choose ⌠virtual cards or not. Most of them sign up.âÂ
Fixing Cash Flows, Fighting FraudÂ
DPR works with more than 3,800 subcontractors and over 4,800 suppliers and vendors, all of which have their own payment needs and expect to get paid as quickly as possible. According to Rush, meeting these payment expectations is essential to helping them manage their cash flows.Â
Many subcontractors hire additional laborers who need to get paid weekly, creating problems when legacy payment methods, such as paper invoices and checks sent by mail, are used to settle payments within the established terms of the invoice.Â
âIf weâre late, then theyâre out even more cash on the front end,â Rush said. âThat definitely hurts the subcontractor relationship because [it] needs that cash to keep [its] business running.âÂ
Phoenix noted that virtual cards not only improve cash flows, but also reduce fraud vulnerabilities. The cards do not require vendors to share their banking details with DPR, meaning that information is not vulnerable to compromise. In addition, virtual card numbers can be used only once before they expire.Â
âItâs for a particular vendor for a particular invoice,â Phoenix said. âOnce it has been used, it cannot be used again.âÂ
Vendors that successfully process their virtual card payments are sent remittance advice notifications that include invoice details such as payment amount, purchase order and date.Â
These solutions have helped DPR better understand how much capital it has on hand. Having better insight into the companyâs cash flow presents new opportunities for savings, such as reduced spending on expedited deliveries.Â
âIt reduced our FedEx expenses because if we needed to get an urgent payment out to a vendor, sometimes we [would] have to overnight the checks,â Phoenix said.Â
Rush echoed the sentiment that virtual cards provide a win-win for both DPR and its network of suppliers.Â
â[Our cash flow] is more predictable,â Rush said. âWe know when payments are received because theyâre gone when we send them. For suppliers, they get their money faster. Itâs faster than ACH.âÂ
Putting Cards To Work
Virtual card technology is not the only card-based solution DPR uses to streamline operations and maintain a steady cash flow. The company also issues purchasing cards that enable DPRâs staff who work at different construction sites to more easily make work-related purchases.Â
âThese are for small ⌠purchases,â Phoenix said. âIf one of the jobâs team members has to pick up an item at Home Depot, itâs easy for them to go in, pick up and pay for the item right then and there, instead of creating a charge on an account or an invoice.âÂ
These tools also help workers on the companyâs back end, as DPRâs AP department does not have to review invoices for expenses.Â
âAccounts payable is able to focus on other areas and the jobs team is able to have [the items] they need immediately,â Phoenix said.Â
Such solutions enable DPRâs staff to focus on their own tasks in the field. The global nature of the companyâs operations requires many staff members to travel to new cities and job sites, Rush noted. Purchasing cards enable all of the companyâs professionals â including temporary workers or employees assigned to field-based roles â to pay for a variety of travel-related expenses.Â
âThey can use their [purchasing] cards to pay for plane tickets or meals, incidental things of that nature,â Rush said. âIt makes [things] easier because they donât have to use their personal cards.âÂ
Such offerings are essential for the construction market to maintain its momentum, and the right payment solutions could prove to be as valuable as any tool in a construction workerâs toolbox.