Why payment speed matters in construction

In the fast-paced world of construction, time is quite literally money. Yet, a persistent challenge plagues the industry: the speed of payments. From real-time payment information to the velocity of money movement, from data accessibility to payment confirmation, every aspect of the payment process plays a vital role in the health and success of construction businesses. Let's investigate why payment speed is critical and how modern solutions reshape the landscape.

The current state of payments in construction

While many construction businesses are profitable, many workers are not paid on time for their work. A recent survey by Datos Insights revealed that 43% of construction companies cite the speed of payment/settlement and visibility of payment transactions in real-time as major problems with their current payment processing.¹

Most construction companies offer payment terms of 30 days or less.¹ However, receiving payment within this timeframe remains elusive for many. This discrepancy creates a domino effect of financial strain throughout the industry. Subcontractors blame general contractors for slow payments, and general contractors report that project financing is the root cause of delayed payments. Regardless of where the blame lies, the consequences are impactful to all.

The impact of slow payments

Slow payments in the construction industry are more than an inconvenience; they're a significant obstacle to business operations and growth. Construction businesses report that tardy payments contribute to wasted resources and reduced profits. Chasing payments takes time and effort away from core business activities. Delayed payments can lead to cash flow issues, forcing businesses to take out loans or delay their own payments, incurring additional costs. In extreme cases, slow payments can jeopardize a company's ability to pay its workers on time. These issues can create a vicious cycle, hampering a company's ability to take on new projects, invest in growth, or maintain a stable workforce.

The need for speed in every aspect of payments

While much attention is given to the speed of money movement, it's crucial to recognize that payment speed encompasses much more. Here's why speed matters in various aspects of the payment process:

• Real-time payment information: Visibility into payment status allows businesses to make informed decisions about cash flow and resource allocation.
• Speed of money movement: Faster receipt of funds enables quicker reinvestment in the business, whether for materials, labor, or new projects.
• Data accessibility: Quick access to payment data facilitates better financial planning and reporting.
• Payment confirmation: Rapid confirmation of received payments reduces uncertainty and allows for more accurate financial forecasting.

Integrated payment solutions: A game-changer for payment speed 

An automated payments solution that streamlines accounts payable (AP) disbursements can be a game-changer for construction businesses. These solutions ensure secure payments and offer suppliers alternate ways to receive funds, including mailed checks, ACH, virtual credit cards, debit cards, or eCheck payments.

Automated payables streamline payment processing with integrated payables files, allowing businesses to combine all payments in one file, regardless of payment method. This enables faster payment reconciliation and approval workflows. By integrating with existing accounting software, businesses can quickly implement efficient payment solutions—without incurring costly development fees or untimely delays. Construction firms can save valuable time and resources while reducing the risk of late payments slipping through the cracks.

The urgency of adoption

While digital payment innovations address the construction industry's payment challenges, the longer businesses wait to adopt these solutions, the longer they'll grapple with the negative impacts of slow payments.

The future of construction lies in embracing digital and automated payment systems. These technologies allow businesses of all sizes to streamline their payment processes, reduce delays, and focus on what they do best: building.

Source:

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