How to Make Bank With Intelligent Payments Automation

Every modern company needs a vendor-payments strategy. That applies doubly for construction companies because the industry’s payment challenges are bigger than ever. And so are its opportunities.

Payments are at the center of two critical areas of the construction business—vendor relationships and job progress. Getting strategic about how you pay can make a big impact.

What exactly is a payments strategy? In the check-centered world of the past, it meant managing float, capturing early-pay discounts, and/or shifting some payments to credit cards in order to get rebates. Today, however, it means using intelligent payments automation to glean the most leverage possible from every payment you make.

Beyond Replacing Paper

It starts with eliminating paper checks, but it doesn’t end there. You have to think strategically about how you’re going to replace them.

First, you want to encourage as many vendors as possible to take virtual card payments. Designed specifically for account payable (AP), virtual cards offer the convenience and rebates of credit cards along with an extra level of security.       

You can sign up any vendors that won’t accept a credit card for automated clearing house (ACH) payments. After that, only holdouts that absolutely won’t take any form of electronic payment should get a paper check.

Sounds easy, right? It’s not, for two reasons—workflow and vendor enablement.

Workflow Changes Can Mean Extra Work

For years, businesses have tried to eliminate paper checks, with only moderate success. Simply adding a card product or bank-provided ACH hasn’t gotten them across the finish line because those solutions only move money electronically.

They don’t help reduce the necessary front-end work to get to the point of payment. Ironically, introducing payment types like card and ACH solutions on their own can actually add more workflows and complexity to the process.

That’s one reason construction companies are still mostly check-based. They’re already managing lien releases, progress payments and job-cost accounting on top of the usual AP process. So adding more workflows for electronic payments is the last thing they need.

The Vendor-Enablement Challenge

The other factor keeping businesses from going electronic is the task of vendor enablement. All you need to pay any vendor by check is their name and address. But electronic payments require you to know who will accept a card or ACH, and getting that information is a lot of work.

Besides that, in order to pay vendors who agree to accept ACH, you need to collect, securely store and maintain their banking information. Most AP departments don’t have the resources to add comprehensive, ongoing vendor enablement and data security to their workload.

Construction companies face even bigger vendor-enablement challenges. Every job is almost like a mini-company with different owners and different business entities, and expenses have to be kept separate.

For example, you might be renting 10 cranes from a supplier for different jobs. In most industries, you’d get one bill, but because of the way construction projects are set up, you might recieve as many as 10 different bills.

So, you have to set the rental company up as a vendor 10 separate times in your system. Then, you have an everchanging roster of local and specialty subcontractors that have to be enabled for each job and/or entity.

I’ve worked in AP solutions for over a decade, and I’ve never seen an industry with as much complexity around supplier enablement as construction. But, at the same time, construction faces low profit margins and scarce internal technology (IT) resources and spends most technology investment allotments on field operations.

Further, with many construction firms run by founding families, the tradition of the owner signing every check dies hard.

Not Just for Consumers

Here’s the good news: Just as they did with consumer payments, financial technology (fintech) companies have stepped up to address these complex, manual processes. Automated payment solutions enable you to make every type of payment (card, ACH, wire, print check) from a single interface. There’s just one workflow—deciding which invoices to pay and clicking the “pay” button.

You don’t even have to know how a vendor wants to be paid. Solution providers now use cloud-based networks to handle vendor enablement and information management at scale. Instead of listing the same equipment rental company for 10 different entities, the solution provider adds it to the network, if it isn’t already part of it.

The solution provider also takes on the burden of storing payment preferences and banking and remittance information, and keeping it all up to date. In this way, these new fintech systems can help most businesses reach 80% procurement or more electronic payments.

Early electronic payment adopters in construction have found that being able to pay vendors on time consistently with full remittance data helps them attract top subcontractors to bid on their jobs. They can also enable field supervisors to approve payments in the cloud while on their jobsites, which saves tons of time and really helps keep jobs moving.

Positioning for the Future

Although construction lags far behind other industries in adopting technology in general, it’s not far behind in terms of payment automation. Companies across all industries have been slow to adopt electronic payments because of the challenges around workflow and vendor enablement, and because they’re simply unaware of new automation solutions.

For years, bank and card products have been the only players in the payment game, even though they haven’t solved for all the complexity surrounding the process.

The good news is that even if you’re still heavily relying on checks, you’re not a long way from automating payments. Being in the cloud lets providers integrate their solutions into your enterprise resource planning (ERP) or accounting system within just a few hours of IT time.

This is a relatively easy technology project—much easier than an ERP, peer-to-peer (P2P) or payroll transformation —because it’s fully contained within AP. It pays for itself quickly and frees up AP personnel time for other initiatives.

As payments become automated in the cloud, companies are gaining enough visibility into invoicing and payments to leverage speedier, more sophisticated payment strategies, such as trade finance and dynamic discounting. So, it’s time to start thinking strategically about payments—beyond just timing your check payments or shifting from paper to electronic.

Payments are tied to so many things in construction (e.g., vendor relationships, cash management and job progress), and that makes them an area in which digitization can drive a whole lot of value.