Going Digital Speeds Up Construction Payments

Slow payments have been a constant state of business for the construction industry for many years. According to pymnts.com, staled payments contributed to 12% of total construction costs last year. As a result, many construction companies are forced to finance gaps in cash flow that ultimately eat into their profit margins.

The pandemic exposed the multitude of friction points for all business-to-business organizations, but especially for construction companies and how they make and receive payments. The construction industry paid attention to those deficiencies and turned to payment innovation to improve their situation.

Construction Industry Places Premium on Faster Payments

Today, 67% more construction firms are using software for payment paperwork than before the pandemic. Firms are using software in key areas, with 62% using it to track and process payments, 55% to coordinate sending and tracking payment paperwork, 54% for task management and job site coordination, and 44% for plan management and reviewing.

And the construction industry is leading the way in payment innovation among their B2B peers with their focus on accounts payable, accounts receivable integration, and enterprise resource planning. These contractors are overwhelmingly aiming for faster payments and easier cash flow management by targeting payment acceptance, cash application, and invoice delivery.

Faster Payments Relieve Cash Flow Pressure

Subcontractors demonstrate that faster payments create as much value as alleviating financial costs, according to one study. While the cost of floating payments is up almost 3%, subcontractors said they would discount payments made within 30 days by an average of 5%, a decrease from the previous year’s average discount of 6%.

Faster payments matter so much to subcontractors that even for those who did not get hit with costs related to floating payments in the previous year, nearly 6 in 10 would offer a discount. Contractors also see the value of credit cards: 49% of general contractors use and accept credit cards to cover projects.

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