Most commercial construction companies only think about financial technology when it comes to paying their large, often fragmented supplier base.
But the right payment solution can make the payment process more efficient while addressing other critical business challenges and improving payment visibility for all those interested
Payments are important to everyone in the construction trade
General contractors aren’t the only ones who have to manage, receive and disburse payments during a commercial project. Other key stakeholders, such as owners, developers, lenders and suppliers, are equally invested in the effects of effective and secure payment processes.
“The entire value chain will benefit from streamlined and transparent payment processes,” explains Wayne Alley, executive vice president of risk at general contracting and construction management firm VCC Construction, “especially given the interconnected dependencies that exist due to pay when paid contracts and the presence of lien risk from subs and downstream material suppliers.
Owners and developers
Commercial property owners and developers must track and make payments not only to general contractors, but also to other service providers for costs such as architectural, engineering and insurance fees. Owners and developers also benefit from the traceability and security provided by isolating project funds and ensuring payments are made to downstream subordinates and suppliers, significantly reducing lien risk.
Subcontractors
Subscribers can use digital payment solutions to pay subordinates and lower tier suppliers without delay, all while collecting digital lien waivers. This automates the process, ensures compliance, and reduces the potential for errors that further delay payments from the general contractor.
lenders
Payment solutions that offer background control ensure lenders that project progress stays within the appropriate project. They do this by requiring general contractors to pay only subcontractors and vendors associated with that specific project.
Link companies
Binding companies benefit from project-level fund control with full transparency. The right payment solution ensures that contract revenue is used for the right project, a key component in reducing financial performance risk. (In other words, contractors cannot “borrow” from one project to finance another.)
Construction managers and representatives of the owners
Construction managers and owner representatives can take advantage of distributed approval rights for payments made on actively managed projects, with full transparency on the use of project funds.
What to look for in a dynamic payment solution
If you want your payment platform to address the unique needs of all components of the commercial construction ecosystem, it requires features that cannot be found in traditional payment processing platforms. For example:
- The ability to manage permissions based on user roles allows you to configure role-specific access to features within the payment platform. “This allows external parties to be involved in certain workflows without having full access,” explains Alley.
- Integrated banking isolates the project’s cash flow in a fund control situation. Alley can create bank accounts to segregate funds and support multiple payment methods, such as ACH deposits and paper checks, to accommodate all types of beneficiaries within each project.
- A web-based platform makes the system easy to configure for a specific project without the need for on-site software implementation or coding.
- Secure processes support tokenized bank connections, geofencing and real-time alerts on potential fraud.
Which offers a flexible and dynamic payment solution to construction companies
“Payments to subcontractors and vendors are a significant source of potential risk, as cash flow is the lifeblood of our industry,” says Alley. “Sellers must be paid so that they can meet their material and labor needs. By using a payment solution to pay quickly, efficiently and transparently, general contractors reduce lien risk, avoid downtime and increase subcontractor work, allowing them to meet deadlines” .
Streamlining the payment process and establishing visibility also increases productivity and compliance, while effectively facilitating collaboration and communication between internal and external project stakeholders.
Historically, the commercial construction ecosystem relies heavily on trust. Parties must have confidence that other stakeholders take their perspectives and demands into account when making decisions.
“Owners pay the general contractor with an imputed level of confidence that the general contractor will pay the subs and vendors,” says Alley. “If they don’t, the owner may ultimately be responsible for making a redundant payment to settle liens based on non-payment to suppliers and subs. Likewise, subcontractors are willing to sign a payment agreement when pays with the expectation that the general contractor will work diligently to collect payment from the owner and in turn make payment to the subcontractor.
The right payment solution makes this process fully visible and traceable, with a financial audit trail of all payments, when they were made and to whom they were sent.
The real impact of a dynamic payment solution
To manage risk and protect the client’s equity during a unique project, VCC leveraged Struxtion’s payment platform to manage the payment process, working as a construction manager to help identify a general contractor to execute the work.
As Alley describes, a digital bank account was set up to control the funds provided by the owner. Each month, the owner’s payment application was paid into an account controlled through the platform. Payment instructions were digitally uploaded by the general contractor for all subcontractors and vendors during the payment period, and then approved by the VCC as construction manager.
“As the construction manager, we approved the payments, segregated the cash for those payments, and provided checks and balances on the payments made with the owner’s equity,” he explains. “When a payment is made, Struxtion collects unconditional lien waivers. We have access to payment verification and waivers. This solution has provided us with a unique and vital combination of digital banking, workflow approvals, and executed lien waivers digitally that increases the speed, security, accuracy and transparency of capital.”
