It's important for any company to have a vendor payments strategy in today’s business climate. But the reality is it’s twice as imperative for construction companies to implement this process because the industry’s payment challenges are bigger – yet so is the opportunity.
Payments are at the center of two critical areas of the construction business: vendor relationships and job progress. So getting strategic about how you pay can make a big impact.
What exactly is a payments strategy? In the check-centered world of the past, it meant managing float, capturing early-pay discounts and/or shifting some payments to a credit card in order to get rebates. Today, it means using intelligent payments automation to get the most leverage from every payment you make.
Beyond Replacing Checks
A payments strategy starts with eliminating paper checks, but it doesn’t end there. You have to think strategically about how you’re going to replace them.
First, you want to encourage as many vendors as possible to take virtual card payments. Designed specifically for AP, virtual cards offer the convenience and rebates of credit cards along with an extra level of security.
You can sign up any vendors that won’t accept a credit card for ACH payments. After that, only holdouts that absolutely won’t take any form of electronic payment should get a paper check.
Sounds easy, right? It’s not, for two reasons: workflow and vendor enablement.
Workflow Changes Can Mean Extra Work
For years, businesses have tried to eliminate paper checks, with only moderate success. Simply adding a card product or bank-provided ACH hasn’t gotten them across the finish line because those solutions only move money electronically. They don’t help reduce the necessary front-end work to get to the point of payment. Ironically, introducing payment types like card and ACH solutions on their own can actually add more workflows and complexity to the process.
That’s one reason construction companies are still mostly check-based. They’re already managing lien releases, progress payments and job-cost accounting on top of the usual AP process. Adding more workflows for electronic payments is the last thing they need.
Vendor Enablement Challenge
The other factor that’s kept businesses from going electronic is the task of vendor enablement. All you need to pay any vendor by check is their name and address. But electronic payments require you to know who will accept a card or ACH — and getting that information is a lot of work.
Besides that, in order to pay vendors who agree to accept ACH, you need to collect, securely store and maintain their banking information. Most AP departments don’t have the resources to add comprehensive, ongoing vendor enablement and data security to their workload.
Construction companies face even bigger vendor-enablement challenges. Every job is almost like a mini-company, with different owners and different business entities, localized vendors, and an ever-changing roster of local and specialty subcontractors. I’ve sold AP solutions for over a decade, and I’ve never seen an industry with as much payment complexity as construction.
At the same time, construction also faces low profit margins and scarce IT resources, and sees fit to spend most technology investment on field operations. Further, with many construction companies run by founding families, the tradition of the owner signing every check dies hard.
Not Just for Consumers
Here’s the good news: just as they did with consumer payments, technology companies have stepped up to go beyond moving money electronically. Automated payment solutions enable you to make every type of payment from a single interface. There’s just one workflow — deciding which invoices to pay and clicking the “pay” button.
You don’t even have to know how a vendor wants to get paid. Solution providers now use cloud-based networks to handle vendor enablement and information management at scale — and a lot of your vendors are probably already part of their networks. Plus, the cloud lets providers integrate their solutions into your ERP or accounting system with just a few hours of IT time. These new financial technology (fintech) systems can help most businesses reach 80% or more electronic payments. It’s a project that pays for itself quickly and frees up AP time for other initiatives.
Early electronic-payment adopters in construction have found that being able to pay vendors on time consistently with full remittance data helps them attract top subcontractors to bid on their jobs. They can also enable field supervisors to approve payments in the cloud while on their jobsites, which saves tons of time and really helps keep jobs moving.
Positioning for the Future
Although construction lags other industries in adopting technology in general, it’s not far behind in terms of payment automation. Many companies are often slow to adopt electronic payments because they’re simply unaware of new automation solutions.
For years, bank and card products have been the only game in town, even though they haven’t solved all the complexity surrounding payments. Things have changed, and there’s a lot coming down the pike, including innovations in accounts receivable, trade finance and dynamic discounting.
As payments become automated in the cloud, companies are gaining enough visibility and speed in invoicing and payments to leverage these advanced programs. Even if you're still heavy into checks, you’re not a long way from being able to capitalize on new technology solutions.
So it’s time to start thinking strategically about payments — not just as paying bills or shifting from paper to electronic. Think about payments as an area where you can leverage technology to increase value and get out on the leading edge of back-office innovation.