- LMS Project
How To Streamline Payment Processes In Your Construction Business
Despite an economic downturn in the U.S. and forecasts of a contraction in construction projects by 2% in 2021, new, much-needed infrastructure projects are expected to spring up nationally in the same year.
Experts predict that the hot pandemic housing market will propel new construction business for residential units by the end of 2020.
That’s why your company must be well-positioned to capitalize on new projects immediately. As part of that preparation, you’ll need to make sure that your construction payment procedures are as streamlined as possible. Automated online tools can make this an efficient part of your business.
Keep reading to discuss some of the ways you can streamline the payment process while tracking your budget, paying your vendors, and getting the most out of the lien waiver process.
Budget Tracking for Your Construction Business
There isn’t a more important feature in construction finance than budget management and tracking. It goes without saying that in the world of competitive bidding, the profit margin for construction is razor-thin. You need to make sure that you’re on target at all times and that all the principal players in your project are on the same page, on time, on or under budget, and payments are processed promptly.
This budget tracking needs to have an immediate presence so that the most recent change orders are recorded in real-time. As you are probably well-aware, change orders can derail a project if the client, builder, and subcontractors aren’t on the same page. These changes can have an immediate and long-term impact on the financial viability and timelines of your projects.
Online tools can alert everyone from the project manager to subcontractors of changes before they put shovel to gravel or brush to drywall, saving valuable time and money.
Another great benefit of online budget tracking is up-to-the-minute forecast modeling. Any number of issues can stop wrenches from turning. (Hello, pandemic.)
With online budget tracking tools, you and project stakeholders will all have a reasonable timetable for the job, allowing you to run your business and schedule new jobs and your personnel.
Is there anything more frustrating than a lender, architect, or unresponsive property owner holding up a draw request and putting your subcontractors, your project, or even your entire business on ice?
One of the easiest ways to deal with this is to use online invoice management tools to take the entire draw request process into the cloud. Contractors sign off on the work on the project budget online and can automatically produce a draw request at the click of a button. The lender and even property owner can immediately see this, and with a few more clicks, money is allocated and even sent electronically, and the project continues without interruption.
Of course, this all flows back to the before-mentioned budget tracking, and using the right online tools to manage both the project budget AND your payment processes from top to bottom.
As stated in other posts, after an invoice is sent to a client, it can take 50 to 70 days to receive payment. This lag, coupled with partial or delayed payments, can put a big dent in your construction company’s cash flow, that of your general contractor’s business, and on down the line.
It would be best if you had enough revenue coming into your business’ coffers so that you can cover your expenses. Otherwise, you’re financing the project for the owner! That’s not good enough.
That’s why online tools are so important to the invoicing process. With these apps and portals, you can finish a task and invoice it right from the job site, and can then track the path of your invoice all the way to accounts payable.
In theory, payment for your hard work could be received in a matter of days or even hours, instead of next month or the month after that. This has an immediately effect on your business’ cashflow and your ability to grow.
Lien Release Collection
Maybe the most obscure part of construction is the partial, conditional, and final payment lien waivers. It’s a terrible dinner conversation and puts most people to sleep, but it’s also one of the most important parts to getting your contractors and subcontractors paid.
Some compare lien waivers to a Catch-22, and others compare it to bluffing in poker. One side doesn’t want to pay until they get the waiver. The other side doesn’t want to release the lien waiver until they get paid. Sounds like a stalemate, no?
But with online lien release tracking and payment tools, the lien waiver process can take minutes instead of days, weeks, and months as you wait for the back and forth of paper documents. With the best lien waiver management tools, documents are automatically produced for you and e-signed, and your payments are released immediately. These new online tools can make the process feel like driving a sports car along the coast vs riding a bicycle uphill in the winter as it has in the past. It’s that big of a difference!
As you’ve picked up on, these tools balance clear tracking measures with speed. So when it comes to speed, one of the most important aspects of the construction process is converting invoice payments into real dollars and cents in your company bank account.
If you have been in this business long enough, you’ve dealt with plenty of vendors’ and customers’ accountants that insist on using paper checks for payment. Dear construction accountants: please, join the 21st Century! Electronic payments are the new standard, because there’s no faster way to get paid. Electronic payments also make instant payment exchange for lien release signatures possible. A lien release is signed and electronic payments of invoices can be immediately initiated and clear in 24 hours or less!
The financial aspect of e-payment methods can not only have an immediate impact to cash on hand, but also in the simple preparation of important financial records such as W-9s, 1099s, and other tax filings which can be accounted for automatically online.
Keep It Simple
You know that anything that can go wrong and often will on a construction project. Some issues are out of your hands, and others you can control, which is why it’s important to maximize the ease of your online payment and tracking process for your construction business. From lien waivers to paperless checks, ensuring you have a seamless and efficient online payment tool is crucial for your construction company to form generation and invoicing.
Are you ready to take the headache out of your payment process with an easy-to-use online platform? Contact us today.