By Jim Campbell, AvidExchange

Here’s a closer look at how automated accounts payable (AP) solutions can help the owner keep costs in check, ensure consistent payments to suppliers and streamline back-office operations amidst persistent inflation.

The construction industry wrangles with time and budget pressures as prices on the goods and services it depends on continue to climb to record-high levels.

With inflation the highest it’s been in more than 40 years, firms are forced to closely monitor internal and external costs to proactively mitigate market concerns and protect cash flow and bottom line. The extra scrutiny takes a toll on staff, requiring time and attention that can be better spent building the business. And, the rising costs and pricing volatility inevitably churn through budgets, causing overages that lead to project deferrals and cancellations and add to the complexities of doing business, making it tougher to get ahead.

Advanced automation technology can be the key to solving major challenges. Automating financial processes like invoicing and bill pay eases demands on time and budgets, freeing staff to focus on winning and serving customers.

Here’s a closer look at how automated accounts payable (AP) solutions can help the owner keep costs in check, ensure consistent payments to suppliers and streamline back-office operations amidst persistent inflation.

Automation is a Powerful Cost Cutter

Coming off pandemic disruptions and still in recovery mode, the construction industry is now forced to contend with the inflated costs of doing business, including higher prices on core building materials and labor.

Rampant supply chain shortages and high demand have led to price spikes on critical products like steel, which has more than doubled, and double-digit increases on lumber, copper, pipe and many other materials construction is dependent upon. According to a 2022 Construction Outlook Report, the steep prices aren’t expected to level off any time soon.

In addition to paying more for supplies, firms are paying a premium for labor, forced to pay up for skilled tradespeople that are hard to come by or risk losing business to those who are ready to work.

As if that’s not enough, the back office is also chipping away at profitability. Paper-based, manual tasks, like those around processing invoices and paying the bills are time and labor-intensive, requiring staff to gather invoices, reconcile, chase approvals across jobsites and cut paper checks for payments.

They are costly processes, especially for an industry that regularly deals with scores of invoices and multiple billing methods, including complicated pay-when-paid structures. Goldman Sachs estimates that a mid-size business spends $16 to process a single invoice. Automated AP solutions offer a way to offset the costs, reducing it to under $6 per invoice, a net savings of roughly 60-70%

By replacing time-intensive manual processes with automation, firms also save significant labor expense and can often eliminate the need to hire additional AP staff to accommodate new business. Staff are empowered to do more with less and their time freed for more strategic work like strengthening supply relationships and seeking new opportunities.

Construction firms also see a cost benefit from automation on the payments side. E-payment options not only ensure faster, more secure payments, they can also eliminate an estimated $4-20 typically spent to issue a paper check, according to Viewpost and Bank of America, as well as the costs of the envelopes and stamps used to mail them.

Ensure Consistent Contractor, Supplier Payments

Beyond an inflationary environment, the construction industry has been notoriously slow in making payments, as PricewaterhouseCoopers estimates an average 96-day turnaround on payments to general contractors and subcontractors. It’s understandable — construction is a complex business with complicated owner billing and payment structures, frequent change orders and slews of stakeholders. However, sending late payments is not conducive to growing a business, even in a paid-when-paid scenario.

The industry relies on goodwill and strong relationships, which depends on prompt, accurate payments. It’s how firms develop supplier relationships and win subcontractors’ loyalty, ensuring that they have what it takes to complete jobs and bid new ones.

But, despite good intentions, consistently paying the trades and suppliers accurately and on-time takes precise management of cash flow, which starts with more efficient owner billing, evaluating pricing fluctuations, ensuring change orders are approved in a timely manner, and monitoring shifting inventory levels of essential building components.

It also means collecting invoices and supporting documents from scores of subcontractors and suppliers, reconciling data to ensure what’s been billed has been delivered and securing invoice approvals from people scattered across job sites. After all of this effort, do we really want to extend the process by cutting paper checks and relying on a third party to deliver them?

Invoice management solutions powered by automation offer a solution by enabling invoices to be automatically acquired, coded and sent to the appropriate workflows for approval through machine learning technology. Automated bill payment software can then be used to accelerate payment deliveries and construction companies can offer contractors and vendors their preferred method of payment, such as Automated Clearing House or Virtual Credit Cards, both of which are executed faster and more securely than paper checks – to determine what works best.

Streamline Back-office Operations for Agility

In addition to saving the industry time and money and ensuring speedy payment, automating the AP department streamlines back-office operations and provides newfound visibility that is especially critical during the inflationary environment.

For example, depending on manual processes to make sense of an avalanche of change orders and shifting work and supplies to accommodate them opens up the potential for error, as well as missed opportunities. With better insights into expenses and incoming payments, firms can more accurately bid projects, allocate resources and make projections to improve margins and ultimately profitability.

Streamlining the back office with cloud-based automation that seamlessly integrates with existing accounting software allows construction firms to accept online invoices, pay them electronically and keep real-time records of transactions and supplier data.

By storing financial data in the cloud, they can access it from anywhere, at any time. The visibility enables them to quickly and easily assess which materials have been delivered and are ready for payment, track costs to better manage cashflow, and run reports to monitor spending trends and forecast income.

Embracing Automation to Mitigate Inflation

Demand for construction is projected to continue its upward trajectory, offering up a wealth of opportunities for firms to expand and evolve. But businesses will continue to face hurdles, including persistent inflation and a dwindling labor force.

Modernizing the financial side of the business with automated tools will help to alleviate these pressures, saving time and money and strengthening the relationships construction. Moving AP processes to the cloud will also give better access to important financial data and powerful insights to help monitor financial health and guide important decisions to not only sustain business but scale it to embrace new opportunities despite market constraints. 

About the Author

Jim Campbell is VP of Construction Sales for AvidExchange. Jim began his professional career in 1979 with Timberline Software Corporation, a pioneer in the development of application software for the construction and real estate industries, eventually rising to Vice President of Sales in 1996. The company was purchased by Sage Software, and he continued in his senior management role there until 2005, when he became president of CIS Consulting Group, Inc. in Charlotte, NC. In 2010, CIS was acquired by Viewpoint Construction Software, where he served as Channel Sales Manager for North America before joining AvidXchange. Learn more at avidxchange.com/construction