It takes a lot of equipment and a lot of skill sets to move construction projects from paper to concrete. Working with and managing a large number of subs and suppliers creates complex, multi-tiered payment structures that are fraught with potential for errors and delays along the industry’s long payment chain.
Among these many elongated structures is the traditional joint control process, which is common in many construction projects. You know the drill: a check is made out to two parties—a subcontractor and a supplier, for example—and both parties must sign it before it can be cashed.
This process is intended to ensure that payments are properly disbursed and brought down the line to subcontractors and suppliers. But this approach to solving default problems has become too complex for many reasons:
- It requires manual coordination between parties and management of lengthy processes.
- May delay payment for parties below.
- It opens the door for human error to enter.
- It can be difficult to make sure everyone gets their share.
- It can quickly erode trust and increase risk when things go wrong.
Digital joint checks allow full visibility of payments
Digital joint check platforms remove obstacles that create cash flow bottlenecks in an industry already struggling with tight margins, and are changing the way outdated payment processes work.
These platforms are more than digitizing payments. They digitize entire payment workflows to enable a faster and smoother exchange of paperwork and create new opportunities in the industry.
Just ask Wayne Alley, executive vice president of risk management at general contracting and construction management company VCC Construction. Through Struxtion’s digital peer-to-peer platform, says VCC has found a way to simplify a historically complicated process that involved multiple people in multiple departments.
“At the very least, we lost a couple of hours of time with every joint check we issued,” he explains. “When you’re dealing with over 2,500 subcontractors annually, even if only half of them need joint verification, you save an hour or two every time you can just flag it as joint verification and let the system run. For us, this translates into thousands of hours saved every year.”
As important as the time savings, if not more, in Alley’s eyes is Struxtion’s ability to provide complete visibility into where and when money is going. As he oversees the company’s risk management department, Alley is always assessing financial implications, thinking about compliance and seeking strategies to identify and assess potential threats. Digital joint checks reduce the chance of money being allocated to the wrong job, leaving VCC without the correct lien exemption. Alley sleeps better at night knowing that funds meant for the supply house are getting there, rather than being stuck with a subcontractor suffering from temporary cash flow problems that could lead to potential surprise liens from downstream suppliers .
How digital joint controls work
When you are ready to issue a digital joint check, the platform user is simply set up the necessary financial flow between all parties involved. Payments, including required lien waivers, can be activated simultaneously. Once the payer flags payments that require lien waivers, the payee receives a notification that the waivers are ready to sign.
The payee is asked to execute the waiver, a digital payment is scheduled, and then a lien waiver is digitally executed. Lien releases and payment processing occur accurately and simultaneously.
Offering full transparency for all payment stakeholders, it’s a streamlined and integrated way to manage a previously complicated and fragmented process.
Platforms that include integrated banking take digital joint checks to the next level by isolating the project’s cash flow in a fund control situation. To accommodate all types of beneficiaries for each project, bank accounts can be set up to separate funds and support different payment methods (ACH deposits and paper checks, for example).
Improve the sector’s cash flow to drive efficiency
The capabilities of joint check digital platforms are poised to not only change the way construction companies manage payment flows, but to transform the entire industry. By making sure everyone gets paid in a timely manner, they help construction companies thrive.
With improved cash flow, companies can allocate money to other initiatives and start new projects sooner instead of worrying about how and when to pay subscribers and suppliers.
“It’s about putting the money in the hands of subordinates and suppliers in a very controlled way that involves less paper,” explains Alley. “It simplified our process and accelerated payment with the electronic movement of dollars. It also helps mitigate the risks associated with doing it the old-fashioned way. Struxtion’s digital joint check platform has been a game changer for it’s the way we can distribute funds for subcontractors, partners, suppliers and vendors. The more people know how easy it is, the more willing they will be.”
Note: Struxtion is a financial technology company and not an FDIC insured bank. Checking accounts are provided by FDIC Member Lewis & Clark Bank
