Construction Sector Builds on Automated Payments

In the complex world of business payments, arguably no sector needs simplicity more than construction.

About two years ago we suffered a failed sump pump, and we had many, many gallons of water in our basement. We worked with several companies – water damage experts, restoration, general contracting and anyone who’s ever paid a contractor will understand the complexities. Some contractors want half of their fee upfront and the other half on completion. Some will extend credit terms. Some will want to be paid by the day. And many will still only take paper checks – discount or no discount applied. It’s maddening for somebody in payments.

That’s the business on a personal scale. Accelerate that into the top tier of the $1 trillion per year construction market – from commercial, to residential to public building – and you find more and more companies looking to automate their payment processes in the interest of efficiency and accuracy. The sector needs both. For procurement and for large projects the average construction company has to wait 83 days to get paid. And the pain points can show up in late payments, which can be disastrous. In 2022 late financial payments cost the industry $208 billion. The figure is a 53% increase from 2021’s total of $136 billion. In addition to the financial burden, 37% of all respondents to a Construction Dive survey reported that late payments led to delays or work stoppages. The survey said that some contractors reported boosting their bids from 5% to 10% to help mitigate potential losses. 

It's a complex world in which projects often have long timelines, and payments can be delayed due to various reasons, including disputes over work quality or completion. Managing cash flow becomes a critical issue for contractors who need to pay for labor, materials, and equipment upfront. Payments in the sector are typically made in increments based on the completion of project milestones or phases, requiring detailed documentation and approval processes, which can delay payments and add administrative burdens.

Operational efficiency, as a primary business metric, measures the relationship between profits earned and operating costs. The greater the operational efficiency, the more profitable a company becomes. Ensuring operational efficiency within your accounting or finance department allows businesses to save time, reduce costs, and ultimately achieve timely and accurate financial and economic information for informed decision-making. 

“Regardless of your accounting department size, processes can always be reviewed and improved,” says a recent article in Construction Business Owner. “If your organization struggles with real- time and accurate information, it’s time to reassess and enhance the efficiency and effectiveness of your finance and accounting processes.”

It’s exactly what happened at Specialty Products and Insulation (SPI). Founded in 1983, it is a leading distributor of thermal, acoustic and fire protection products in North America, scaling through organic and acquired growth from $10 million to $1 billion in revenue over the past four years. It makes $500 million in business payments every year and recently upgraded and automated its AP systems with Bottomline. Karen Singleton, SPIs director of credit and shared services, says part of the battle to improve its systems began with the culture of the industry itself.

“In the construction industry you have vendors as well as customers that aren’t technologically savvy,” she says. “A lot of times they want to stick with the tried and true. The way they see things is that they aren’t broken, so why fix them?”

That may work for some companies in the field, but it wasn’t working for SPI. Singleton and SPI struggled with multiple ERP systems and manual processes every step of the way, whether it was invoice processing, writing and mailing paper checks or ACH and wire transfers. As she puts it the accounting process and department was in disarray as a result. As the company made more acquisitions the complexity of the manual processes accelerated. It was only recently that Singleton’s business case for AP automation was accepted and implemented. In these early days, Singleton says communication is critical.

“I think change and change management comes down to one point and that’s communicating with your customers. And those customers can be internal or external,” she says. “You have to be clear about the changes you’re implementing and point out the benefits of them. If you don’t you won’t get the buy-in your need. Without the right communication you risk your colleagues going kicking and screaming into the future and they might not adopt the process you’re trying to implement.”

But once integrated, AP automation had a dramatic effect at SPI. Invoices are processed on one platform instead of two or three. Vendor payments are automated, with the occasional exception of a paper check. For example, Singleton recalls a recent case where the CEO wanted to personally deliver a check to an important supplier. Uploading payment files, a process that had been fraught with delays and inaccuracies, is now accomplished with speed and confidence. Singleton says the company has not yet calculated the ROI of AP automation, but they exceeded their goals by 535%!  Anecdotal evidence is supportive and has changed the vibe of the team. Missed and late payments have been eliminated. Vendor complaints have dropped. The company and the AP workload have grown, without needing additional staff. Communications within its different divisions has been streamlined and “good management decisions” are being made proactively rather than reactively. 

While it has unique payments issues, the construction sector also has unique fraud issues. For example, invoice fraud occurs when a fraudulent or inflated invoice is submitted by a supplier or subcontractor. It can also happen when a scammer impersonates a legitimate supplier using false documents. False Representation involves companies or individuals falsely representing their qualifications, the cost of materials, or the cost of labor. It can result in payments for services or materials that are not delivered as promised or are of a lower quality than was paid for. Because its payments network matches invoices to legitimate purchase orders, maintains a strict vetting process for companies within that network and digitizes the invoice-to-pay process to flag any anomalies in the payments process. 

“One of the biggest things for me is the fraud issue,” Singleton says. “The crooks out there keep getting smarter. But I no longer have to manually maintain and update sensitive information about our suppliers. That’s all done on the network. I don’t have to worry about security breaches or being compromised in any way. Did we have to jump through some hoops to get that protection? Yes. But I don’t have to worry about fraud, so it’s worth it.”