Can automation solve the payment problem in construction?

If I have learned one thing about being in construction, it's that the complicated task of invoicing and payments is in dire need of disruption. The vast majority of contractors are stuck in the manual process of collecting, printing, routing and filing paper-based invoices. Scanning solutions for “paperless construction” are a step in the right direction, but are not collaborative and still require data entry.

So what’s the big deal? GC’s have processed Sub invoices and payments this way for a long time, why change?

Here’s the problem. It costs money.

A lot of money. The American Productivity and Quality Center research reported that labor cost comprises 62% of total Accounts Payable processing. Because of the complexity of construction invoices and compliance documents, the percentage of labor required is undoubtedly much higher than most verticals. Based on a study from Association for Image and Information Management, this can equate to $12.90 per invoice. Include the average cost of processing a paper check of $5.00 and multiply that by 15-20 Sub invoices per project, per month. We’re talking about thousands of dollars wasted each month.

The median days sales outstanding in construction is 73 days!

That's 73 days of paying field labor, material suppliers, overhead and office staff out of pocket. A major factor for these delays are due to inaccuracies from manual processes. For example, one wrong date or missing lien waiver on a 50 page pay application can defer payment for the entire project, not just for that specific sub. When payments are slow, so is the productivity in the field.

So can this process be automated for all GC's?

The simple answer: yes. How do we go about this though? Let's look at Venmo, for example. By linking my bank account to the app, I’m able to pay friends and family instantly from my phone. There is no time wasted for my friends waiting around to get my cash or check in the mail.

While construction payments are much more complicated than splitting a dinner bill, we can still apply the basic concepts. Here is what it would look like.

1. A Sub would submit an invoice in less than a minute on his phone after walking the job.
2. A project manager would be able to verify percent complete and approve invoices from his iPad in the field.
3. Bank accounts would be connected by using secure login credentials, not routing numbers and penny deposits.
4. All lien waivers would be digitally signed and compliance documents seamlessly uploaded with every invoice and payment.
5. All data would be pushed to ERP systems seamlessly without CSV uploads. Payments would be disbursed in a few clicks via ACH.

Five steps and you would be able to help scale your business with automation. Construction CFO Dan Finnegan from a publication titled The Decline of the Paper Check: Benefits & Challenges explains, “For many contractors, I’ve seen that actual costs are invisible and accepted, and that means a company can only grow so much by using old processes before the wheels come off and problems become overwhelming. A business must have scalability in administration and management while not increasing staff and overhead, which requires leveraging technology and automating processes.” 

With the staffing difficulties this industry currently faces, we simply cannot rely on hiring to solve our growing pains. All contractors deserve a modern solution tailored for our industry needs. It needs to be beautifully designed, intuitive and robust enough for GC's while easy enough to use for Subs.

With the work we are doing at Net30, modern electronic invoicing and payments can become a reality for all contractors large or small.