Rebuilding construction payments: The crucial role of AP automation

In the complex construction world, where multiple stakeholders, lengthy projects, and intricate financial transactions intersect, efficient accounts payable (AP) processes are critical. Yet, surprisingly, Datos Insights research shows that only 37% of construction companies currently utilize automated payable software for making payments.¹

Construction payments are complex

The construction industry faces a unique set of challenges when it comes to managing payments. A complex web of stakeholders involved in construction projects, including owners, contractors, subcontractors, and suppliers, makes payment coordination a logistical problem without proper tools. Prolonged payment cycles add to this complexity, with businesses often waiting over three months to collect on invoices—a timeline surpassing the 45 days considered essential for maintaining healthy cash flow.¹ This extended wait significantly strains a construction business's financial stability. The construction industry's heavy reliance on accurate and timely documentation, such as invoices, lien waivers, and compliance documents, can make the entire payment process standstill. The ripple effect of these slow payments can impact the entire project ecosystem. When companies struggle to pay their workers and suppliers on time, it can trigger a cascade of consequences, including project delays, strained relationships among stakeholders, and, in extreme cases, legal disputes that further disrupt construction operations.

Strategies for AP improvement

As the construction industry looks to modernize its payment processes, several key strategies will help foster improvements:

• Implement digital payments: The shift from paper-based to digital payment systems is no longer optional. It's a necessity for staying competitive in today's fast-paced business environment.
  
• Offer multiple payment options: Offering payment flexibility, including credit cards, bank transfers, and digital wallets, can expedite payments and improve payer and payee satisfaction.
• Prioritize real-time reporting: Allows visibility of outstanding payments and clear communication about payment terms to prevent misunderstandings and delays.
• Embrace change: Ensuring staff are well-versed in using new payment technologies is crucial for maximizing the benefits of these systems.

Businesses must embrace digital trasnformation to achieve AP improvements.

Use AP automation for efficient payment processing

By automating routine tasks, construction companies can focus on what they do best – building. AP automation can streamline processes through digital payment systems, dramatically reducing the time and effort required to process payments. These automated systems enhance accuracy by reducing the risk of human error in data entry and calculation, ensuring timely and precise payments. They also improve cash flow management by providing faster processing times and clearer visibility into payment statuses, reducing financial uncertainty. Prompt and accurate payments foster trust and goodwill among all project stakeholders, from subcontractors to suppliers. Automated systems help ensure compliance and proper documentation by verifying that all necessary paperwork is in order before processing payments, thus reducing the risk of compliance issues or payment delays.

An integrated payables platform integrates with existing accounting software, allowing businesses to manage all disbursements from a single system. Suppliers can choose their preferred payment method, whether a mailed check, ACH, virtual credit card, debit card, or eCheck payment. The platform handles payee onboarding, payment preferences, and credentials, reducing the administrative burden on payers. 

Building for the future 

Looking ahead, it's clear that adopting automated payables in construction is more than just about keeping up with technology. It's about building a more efficient, transparent, and financially stable industry. There's a clear appetite for change, with Datos Insights' research showing that 57% of companies express interest in automated payable solutions.¹ By embracing change, construction companies can lay the foundation for a more prosperous future, where delayed payments and cash flow crises are relics of the past. 

Source:

1. Datos Insights Q3 2024 survey of 1,037 global mid- and large-sized organizations