How the Speed of Payment Continues to Impact the Construction Industry

By Cindy Walsh
Chief Financial Officer

The construction industry suffers from one of the longest days sales outstanding of any industry in the US. No one has to wonder why when you take a look at the complicated structure and inefficient invoice and payment processes. The first step in speeding up payments is to examine the procedures used for submitting invoices and making payments. If the processes are manual and paper-based, it is likely that the firm’s finance team spends a lot of time entering invoice data, chasing people throughout the company, and even going straight to the jobsites to secure necessary approvals.


While these steps are essential, if done manually, they are slow, less secure and prone to errors. As a result, payments to vendors and suppliers are often late or incorrect. A typical payment term for most industries is net 30, but it takes an average of 83 days for construction companies to receive payments right now. These delays strain cash flow and contribute to a continual cycle of delays throughout the industry.


Automation is essential for speeding up payments, freeing time for better use 


Cloud-based and automated accounts payable (AP) solutions that integrate with construction companies’ existing accounting software and systems can replace cumbersome manual invoice and payment tasks, in turn speeding payments and freeing staff for more strategic work. 


Invoice management solutions automate invoice data entry and approval processes, leveraging Optical Character Recognition (OCR) and advanced technology to sync and speed up the work. Invoices are automatically acquired, coded and sent to their appropriate approval workflows. Once approved, they flow directly into the company’s accounting system for automated payment processing.


Automated bill payment software can then be used to accelerate payments by reducing the need for envelopes, stamps and snail mail that add to the length of time it takes for vendors to receive payment. Once payments are approved, they are paid electronically, quickly and safely.


In addition, construction companies can offer their contractors and vendors the flexibility of choosing a preferred method of payment, including Automated Clearing House (ACH) and Virtual Credit Cards, both of which are executed faster and more securely than paper checks, and can better prompt accurate payment. Furthermore, complete automation solutions also provide construction firms with document management and reporting benefits, enabling them to better manage cash flow and budget.


Investing in technology to create efficiencies and speed payments


In summary, automation has the ability to make finance teams happier and more productive, reducing the time it takes them to do their work so that they can add greater value to their organizations. Furthermore, automating time-consuming, error-prone manual AP tasks also benefits the business by improving cash flow, providing better visibility and strengthening important vendor relationships by more efficiently sending payments.


But what’s perhaps the biggest benefit provided by automation? Getting a leg up on the competition.


Additional takeaways from the September 2021 Construction Payments Report by Rabbet (1)


  • 86% of general contractors said that payment delays directly affect project deadlines; 
  •  83% of subcontractors claim that late payments from a general contractor affects productivity; 
  •  76% increase in general contractors using each lines of credit and credit cards to float payments when payments are delayed 
  •  74% of general contractors have had to pay more for labor or charge more for labor to meet a project schedule deadline in the last 12 months; 
  •  72% of subcontractors would offer a discount in exchange for payments within 30 days 
  •  67% of subcontractors report choosing not to bid on a project due to a general contractor or owner’s reputation of slow payments 
  •  35% of all general contractors report that work has been delayed or stopped due to a delay in payments to crew members in the last 12 months 
  •  17% of subcontractors reported filing a mechanics lien in the last 12 months because of slow payments