Virtual Cards Can Be Valuable For Analog Industries

Last week’s launch of the Mastercard Track Business Payment Service, designed to automate payments between the world’s suppliers and buyers, is just one sign that B2B payments are changing.

This digital shift hasn’t affected all businesses equally, though. Many industries are still heavily analog, small and medium-sized businesses (SMBs) in particular. In the U.S., only agriculture and hunting invest less in digitization than the construction industry, according to recent data.

Even so, the global construction management software market is projected to expand at a compound annual growth rate (CAGR) of 9.2 percent from 2018 to 2022.

The latest Workforce Spend Playbook explores new solutions that are enabling construction firms and other SMBs to maximize their capital, pinpoint cost-saving opportunities and improve their cash flows.

Freeing Up Cash Flow

Construction management software can help companies automate budget management, communication, decision-making and job scheduling.

According to studies aggregated by FinancesOnline, general contractors are the biggest users of construction management software (30 percent), followed by home builders (19 percent). The most wanted functionality is quick cost estimates (60 percent), while accounting (37 percent) is also a popular feature. Only 6 percent wanted mobile access.

What these studies didn’t reveal is that construction management software and tools like virtual cards can also speed payments and free up cash flow.

A PYMNTS deep dive into the industry cited data showing an average of about 70 days sales outstanding (DSO) for the sector, making it the industry with the longest DSO. This can limit cash flow, hamper hiring and retaining staff and stifle investment to increase growth.

Recent analysis from Contract Simply noted 88 percent of contractors wait at least 30 days to receive payment, with 46 percent having waited between 60 and 90 days, leading businesses to rely on external financing to manage working capital while they wait.

How Virtual and Purchasing Cards Can Help

In an interview with PYMNTS, Karin Rush and Linnet Phoenix of DPR Construction explain how virtual cards and purchasing card technologies keep its network of subcontractors from avoiding financial hardship by speeding up payment and expense reimbursement.

Virtual cards are a form of ePayables that act like a traditional credit card. A company can generate a unique 16-digit number to settle a vendor payment transaction issued for a specific dollar amount. Purchasing cards can also be virtual cards with the added bonus of being able to track usage and set spending limits rather than assigning a set figure.

Virtual cards are popular with SMBs that might not give all employees access to a corporate card. They can also save time by allowing suppliers or employees to make one-off purchases without going through an onboarding process and settling up the purchase with accounts payable.

They can also improve cash flows and reduce fraud vulnerabilities because a user doesn’t need to provide banking details and virtual card numbers can be used only once before they expire.

Purchasing cards can also enable all of a company’s professionals — including temporary workers or employees assigned to field-based roles — to pay for a variety of expenses related to traveling to job sites.

PYMNTS also spoke to Tom Skraby, vice president of finance for Borrego Solar Systems, and Kathryn Giliberto, the company’s senior treasury manager, about how payment cards help their installation specialists.

Employees are no longer required to submit expense reports and wait for reimbursements, which are often tied to bi-weekly payroll cycles. Payment cards also enable the company to keep projects on track when contractors or supervisors might not have credit cards on hand to make field-based purchases.

Trades Are Slowly Embracing the Digital Future

Virtual and purchasing cards can also save money, according to the National Association of Purchasing Card Professionals. The average costs of traditional procure-to-pay processes range from $50 to $100 for every transaction. When purchasing cards are implemented instead, businesses can save up to 80 percent per transaction.

Traditional trades are discovering the benefits of investing in a digital future. A recent survey of construction SMBs found 81 percent planned to spend more on digital software last year. And despite seemingly low interest in mobile solutions, 58 percent of construction companies now use cloud-connected mobile apps.