The future of construction payments

Payments in the construction industry are often very complex compared to other sectors. By its very nature, construction tends to be focused on projects, often with long periods and a web of partners and sub-contractors. This leads to significant paper trails and major holdups if payments are slow or if things go wrong. The need for efficient payment processes has never been more critical. Yet, surprisingly, many construction companies still rely on outdated payment methods.

According to recent data from Datos Insights, 69% of construction companies report they still make payments using paper checks, while a surprising 57% still use cash to make business-to-business payments. Meanwhile, only 23% of construction companies say they have made a virtual card payment in the last 12 months.¹ While many businesses think that change has to be hard, using a mix of newer payment options can help construction companies become more efficient and solve longstanding pain points.

The current state of construction payments

The construction industry faces unique challenges when it comes to managing payments. Businesses often wait more than three months to collect invoices, which puts a significant strain on their financial stability.

Slow payments can potentially lead to delays, strained relationships among stakeholders, and legal disputes that further disrupt construction operations. Given the seriousness of these challenges, it's no surprise that 94% of surveyed construction companies say that payments are a significant area of investment.¹

Enter the new wave of payment options

To address these challenges, forward-thinking construction companies are turning to innovative payment solutions, with virtual cards and modern payment rails like same-day ACH (Automated Clearing House) and eChecks leading the charge. These payment methods offer a range of benefits that are particularly well-suited to the construction industry's needs.

Virtual cards are rapidly gaining traction in the construction sector, and for good reason.¹ These digitally generated, single-use credit card numbers can offer heightened levels of security and control over transactions. For construction companies dealing with multiple suppliers and subcontractors, virtual cards provide a way to issue unique payment credentials for each transaction, significantly reduce the risk of fraud or unauthorized purchases, monitor payments in real-time and enable more automated reconciliation into ERP and accounting systems. While 23% of construction companies already use virtual cards, an additional 33% plan to adopt them in the next 12 to 24 months.¹ This growing adoption rate underscores the recognition of virtual cards' value in the construction industry.

Like virtual cards, ACH transfers and eChecks also offer speed and efficiency. These electronic payment methods allow for rapid, direct bank-to-bank transfers, dramatically reducing the time it takes for funds to clear compared to traditional paper checks. They also enhance ease of use for construction businesses and simplify accounting and billing on complex construction projects.

Traditional payment methods are liable to remain an important part of the mix for some time to come, and even if these remain important to construction companies, they can benefit by using emerging digital payment options, like virtual cards, eChecks or same-day ACH. The adoption of digital payment tools offers numerous advantages for construction companies, including:

• Improved cash flow: Faster payment processing means improved cash flow for all parties involved in a construction project. This can be particularly crucial for smaller subcontractors who may struggle with extended payment terms.
• Enhanced security: Virtual cards and electronic transfers offer robust security features, reducing the risk of fraud and providing better control over expenses.
• Increased efficiency: Automated payment systems reduce manual processing time and minimize errors, allowing finance teams to focus on more strategic tasks.
• Better supplier relationships: Prompt, reliable payments foster trust and goodwill among suppliers and subcontractors, potentially leading to more favorable terms and improved collaboration.
• Improved compliance: Electronic payment methods provide clear audit trails and make tracking and reporting on financial transactions easier, aiding in compliance efforts.

Overcoming adoption hurdles

Despite the clear benefits, some construction companies remain hesitant to adopt these modern payment methods. Interestingly, only 42% of construction companies report they feel they use best-in-class payment capabilities from their providers.1 Fifty-five percent of construction companies report that operational change is the biggest hurdle they face in modernizing their mix of payment options.¹ This is a greater concern to them than the cost or the speed of implementing new payment tools. 

Change doesn't have to be an ordeal, and construction companies can benefit from a focused approach to their payments journey if they keep a few things in mind throughout the process. 

• Start small: Implement virtual cards, same-day ACH, or other electronic payments for a subset of vendors or projects before rolling them out company-wide.
• Educate stakeholders: Ensure that all parties, including your staff and supplier partners, understand the benefits and processes involved in using new payment methods.
• Choose integrated solutions: Look for payment systems that seamlessly integrate with existing accounting and project management software.
• Partner with experienced providers: Work with financial institutions or fintech companies that have experience in the construction industry and can provide tailored solutions.

The future of construction payments 

As we look to the future, it's clear that the adoption of virtual cards, ACH, and other modern payment rails in construction is not just about keeping up with technology—it's about building a more efficient, transparent, and financially stable industry. By embracing these technologies, construction firms can lay the foundation for a more prosperous future, one where delayed payments and cash flow crises are relics of the past.

In an industry where time literally equates to money, the shift towards more efficient, secure, and rapid payment methods is not just an option—it's necessary for staying competitive and ensuring long-term success. As more construction companies recognize and act on this reality, expect to see a transformation in how the industry manages its financial operations, ultimately leading to smoother project execution and healthier bottom lines for all involved.

Source: 

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