Optimizing Contractor Payments And Productivity For A Flexible Workforce

Late B2B payments continue to plague suppliers large and small throughout the supply chain, but it’s not just companies that are struggling to get paid on time. In the craft labor arena, contractors, too, face the threat of late and delayed payments.

Yet while much of the late payments discussion centers around the controversial tactic among corporate payers to hold onto capital as long as possible by deliberately delaying accounts payable, in industries like oil and gas and other heavy industries, delayed payments to contractors are more often the result of legacy processes adding friction at multiple points, from contract compliance to accounts payable (AP).

Accelerating payments to contractors is an undertaking that requires a modernization push, according to Management Controls Senior Vice President of Insights & Analytics Mark Rivers. In a recent conversation with PYMNTS, Rivers explored the opportunity of data analytics to ensure timely payments to contractors — and the ability for such technology to introduce added value to the companies that procure a contractor workforce at a time when permanent staff remains a questionable talent strategy.

Contractor Compensation

Late payments to contractors in the construction industry is a particularly prominent focus for advocates of timely contractor payments. But in other craft labor markets like the oil and gas, chemicals, mining and others — markets upon which Management Controls focuses — contractor payments face similar hurdles.

This issue is more a matter of legacy technology, said Rivers, rather than poor cash flow management tactics.

“They’re using a 19th century tool process for what we can solve with 21st century digitization,” he said. “In my mind, [late payments] isn’t a matter of people wanting to hold onto the money.”

Traditionally, contractors manually fill out time sheets that must be submitted to a supervisor in the field. That supervisor then produces an invoice for the time worked by a contractor, with the AP department then making the payment. Based on paper spreadsheets and manual data entry, it’s a workflow with plenty of opportunity for error — both intentional and unintentional.

For contract hirers, automation technology can be particularly valuable to nixing paper from this process and accelerating the payment cycle. But as Rivers explained, data analytics can enable companies to go a step further to add value beyond timely contractor payments.

Beyond Timely Payments

Management Controls recently introduced its Insights-as-a-Service offering, a tool that uses the company’s data pool from clients to assess productivity and costs of a company’s contractor base.

When it comes to contractor payments, analytics are not only important to ensuring professionals are paid on time, but also to ensure they’re paid accurately according to contract guidelines.

As Rivers explained, manual processes often fail to ensure contracts are in compliance, meaning contractors may abuse overtime pay opportunities or receive compensation for moments while off the job.

“A lot of contract terms say a company won’t pay for a lunch break,” he offered as an example. “But typically, that’s never excluded from the manual timesheet, so procurement has written contracts that have been agreed to by both parties but are never enforced.”

Other hidden costs for contract hirers can come in the form of securing too many contractors from a supplier, yet not realizing it until it’s too late to send someone home. The nuances of contract agreements — including whether one contractor should be paid overtime for working more than eight hours in a single day, versus another contractor that should be paid overtime only for working more than 40 hours in a week — are also difficult to address via manual processes.

Through data analytics, the contractor payment process is optimized, with value-added opportunity to assess productivity and return on investment (ROI).

Flexibility For The Future

In the immediate impact of the coronavirus, Rivers said that clients of Management Controls saw a dip in contractor hiring and payments. There is evidence, however, that it is beginning to recover.

As corporates begin to reconsider their hiring strategies, Rivers hypothesized that it is possible contract workers may emerge as a more financially sound hiring strategy as market volatility continues.

FinTech solutions like Management Controls have been able to adapt to a fluctuating market, too, with Rivers pointing to the company’s ability to ensure contractors are not financially penalized for having to take the time for health assessments while on site, or wielding data analytics capabilities to be able to pinpoint the location and movements of contractors should the need for coronavirus contact tracing arise.

At the broader level, uncertainty about the strength of the market could lead businesses to rely on contractors more than permanent employees moving forward. While the tactic could save companies money and enable workforce sizes to ebb and flow with a company’s need, the shift to contractors introduces an array of technical challenges that will force businesses to adjust how they measure productivity and compensate their professionals.

In the potential new normal of a larger contractor pool, data analytics will be key to supporting a shifting workforce.

“I personally think we’ll potentially see contracting numbers increase over time,” said Rivers. “Some companies let go of permanent employees, so in the short-to-medium term, they’ll probably replace them with contractors. I don’t know if that will be permanent, but you’ll see a re-shifting of the balance — and [the] coronavirus has highlighted the value of a flexible contractor workforce.”