Old-School Billing Is Creating a Construction Industry Cash Crunch

During times of uncertainty, payment issues can be more of a threat to survival than just a nuisance.

The construction industry, a $2 trillion-plus behemoth in the U.S. alone, is notorious for payment gridlock. Who knew that building skyscrapers was easier than building a smooth B2B payment process?

Picture this: A general contractor finishes a multimillion-dollar project, only to find themselves buried under a mountain of paperwork, waiting months to get paid. Subcontractors and suppliers feel the pinch too, often left juggling bills while waiting for checks that seem to crawl through the postal system.

That’s not just hearsay; it’s the latest PYMNTS Intelligence from the “B2B and Digital Payments Tracker® Series” that found that 71% of subcontractors experienced delayed payments from general contractors, an increase from 60% in 2022.

The average payment cycle extended to 57 days, and these payment snags can have serious consequences. Slow payments trickle down the supply chain, with smaller businesses often bearing the brunt of the delays. Some subcontractors have even gone under while waiting to be paid.

The report found that 77% of subcontractors have had to cover material expenses out of pocket, a share that has been rising annually since 2021.

A contributor to these issues is the industry’s reliance on manual payment processes.

While most industries have embraced FinTech innovations like virtual cards and digital payment platforms, many construction firms are still stuck in the slow lane, relying on manual B2B payments, including paper checks and ACH transfers.

Virtual cards, for instance, provide single-use digital credit options that enhance security and facilitate real-time payment monitoring, thereby reducing unauthorized transactions and streamlining accounting processes.

But as the report found, about 69% of construction companies still use paper checks for transactions. This leads to a domino effect of delays, disputes and financial headaches. Only 23% have adopted virtual card payments in the past year.

The reasons are as layered as a skyscraper foundation, from legacy systems to entrenched vendor relationships. But tradition comes with a price.

Speed isn’t the only benefit. Automated payment systems reduce human error and improve transparency. This, in turn, fosters better relationships with subcontractors and suppliers — key players in any construction project. Faster payments mean happier vendors, fewer project delays, and potentially, lower project costs.

In 2024, 86% of general contractors reported receiving payments more promptly when developers employed digital payment methods. This shift not only improves cash flow but also fosters stronger relationships between developers and contractors.

Read more: Breaking Ground: Solving Construction’s Delayed Payments With Digital Tools

Not everyone is on board, though. Smaller companies often struggle to adopt new technologies due to cost concerns and limited tech expertise. Some industry veterans remain skeptical, preferring the tangible feel of a paper check over digital transactions.

To navigate and mitigate the challenges posed by delayed payments, the PYMNTS Intelligence finds that construction industry stakeholders can:

1. Transition to Digital Payment Systems: Move away from paper-based transactions and adopt unified digital platforms that integrate seamlessly with existing accounting software. This transition can reduce processing times and administrative burdens.
2. Pilot Digital Payments With Select Partners: Implement digital payment solutions with a subset of trusted contractors or subcontractors to ensure a smooth transition and build confidence in the new systems.
3. Invest in Comprehensive Staff Training: Provide thorough training for both office personnel and field supervisors on new digital tools to ensure effective adoption and use.

As construction projects grow larger and more complex, the pressure to modernize payment processes will intensify. The construction industry has always been about building the future. It could be time that their payment processes did the same.

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