4 Secrets to Pain-Free Payment Management

Transcription

1 4 Secrets to Pain-Free Payment Management Textura is the leading provider of collaboration and productivity tools for the construction industry. Our solutions serve all construction industry professionals across the project lifecycle from takeoff, estimating, design and pre-qualification to bid management, submittals, LEED management and payment.

2 Table of Contents

3 4 Challenges of the Payment Process Regardless of size, all contractors share the challenges that arise from the payment process to subcontractors and suppliers. In this e-book,we will share with you the 4 major challenges we've identified contractors to have in this process, and the secrets of how they have been able to remove some of the headaches by using a cloud-based payment management solution. Whether you have experienced them or not, there are many challenges that occur during the construction payment process. From disputes amongst project participants, time spent submitting invoices, or incorrect payment applications, it doesn t take long to realize this is a process ready for improvement. In addition to what can go wrong, there are other aspects of this process that add additional time and cost to the construction process. As we talk to contractors of all sizes, the 4 biggest challenges of this process we've found are: Accuracy Efficiency Risk Collaboration During the remainder of this e-book we will look at the secrets to addressing these challenges with a cloud-based payment management solution. 2

4 Secret #1: Accuracy The causes of inaccuracy on payment applications are numerous. Many times this process involves manual data entry into an accounting software or Excel spreadsheet. With this manual process comes a very high likelihood that errors will occur at some point. For example, it might be as simple as an incorrect formula in an excel spreadsheet file that causes a prior payment to be inaccurate. Another headache we often hear are change orders being invoiced that have not been approved, which can cause a subcontractor's invoice to not accurately reflect approved contracts. The results of inaccuracies, include extra time spent double-checking paperwork or reports making sure all the information matches, additional risk when the invoice, lien waiver, and payment amounts don't match, and spreadsheets or other documents becoming incorrect. What causes inaccuracies? What are the results? Math or history errors Manual processes Updating progress via Excel Unapproved change orders Extra time is spent double-checking paperwork Invoices, lien waivers, and payment amounts does not match Spreadsheets or other documents become incorrect 3

5 Secret #1: Accuracy So, how does a cloud-based software like Textura s Construction Payment Management help improve accuracy? First, on the system all project participants work off a centralized financial database that is set up at the beginning of a project. This centralized database ensures all amounts from the invoice, to the lien waiver, and payment will always match. Additionally, many steps of the invoice approval and payment process can be automated online, eliminating errors that often occur when entering or tracking data manually. Examples of the steps that can be automated online are tracking prior payments or retention amounts. Also, the system can provide more rigor to the change order process and require that they are approved before being billed against. Textura has cut a week-long pay application collection, review and assembly period down to about a day, and it s 100% accurate -Senior Project Manager Improved Accuracy with a SaaS Solution: Owner All project participants work within a centralized financial database Processes can be automated, resulting in the elimination of manual steps Only approved change orders can be billed against General Contractor Subcontractor/Suppliers 4

6 Fundamental 2: Automation Secret #2: Efficiency Over the past several years contractors have made strategic efforts to eliminate waste from their operations. However, no process is exempt from improvement. Lets look at some of the challenges that lead to inefficiency in the construction payment process. The construction industry is still printing paper checks to pay contractors and suppliers. The cost to this can be significant and typically ranges anywhere from $5-$20 per check, not to mention postage fees. The industry has seen some owners and contractors move to an ACH or direct method of payment, which is a practice we predict will continue to increase. The amount of paper that is exchanged during this process is worth discussion as well. In a world that is moving overwhelmingly digital, many industries are taking their work online. Just as other industries have struggled with going paperless, the construction industry is no different. This reliance on paper adds hard costs to the process and also additional time to get invoices and compliance documents into the hands of those who need them. During this process people will make copies, send faxes, file paperwork into folders, scan documents, and transfer figures into excel spreadsheets all to make sure contractors and suppliers are being paid the correct amount and ensuring risk is limited during the process. Inefficiency is caused by: Printing/Mailing checks Exchanging documents through or fax Manual data entry Routing invoices for approval 5

7 Secret Fundamental #2: Efficiency 3: Accountability What is the secret to the efficiency achieved with a cloud-based payment management solution? With the help of a cloud based system, Textura has been able to help companies take 50-80% of the time and manual effort out of their monthly draw process. Lets take a look at a few ways this can happen: 1. First, with the click of a button all subcontractors and vendors can be notified to submit their draw documents. This generates an automated message notifying them to submit their draw documents. 2. All subcontractors will then submit their invoices on the system. This is easy to do and only requires them to input a few figures into their invoice. 3. They will sign their lien waiver, which will be submitted with their invoice. 4. When approving invoices there is a workflow set up so project managers or accounting team members can quickly review, approve, or reject invoices back to subcontractors if discrepancies exist. Subcontractors are notified immediately if changes need to be made and then can re-sign their invoice and waivers. 5. Funds are dispersed via an ACH direct deposit. 6

8 Secret Fundamental #2: Efficiency 3: Accountability This type of solution will be able to eliminate all paper or electronic payment application documents you are receiving or exchanging, as well as allow communication to take place more timely. This improvement to the process eliminates many phone calls and s that typically take place to determine the status of a payment or approval. Any time an action is taken the next person in line will be notified of their pending task so time is not wasted. Tasks that used to take weeks to complete can now be done in hours or days. Since this type of solution helps significantly cut waste, some contractors have been able to continue to grow without having to add additional staff to their front office to manage the paperwork that comes with taking on more jobs. For general contractors, a cloud-based payment management software may also be able to interface with their accounting software which will eliminate even more manual tasks. Tasks that can occur through this interface, include exporting change orders from the accounting system to the payment solution or importing invoices. The solution essentially acts as an extension of an accounting software package. Improved efficiency with a cloud-based solution: No more exchanging paper or electronic documents All communication is done on the system and can be accessed by project participants Interfacing can occur with accounting software to further eliminate tasks 7

9 Fundamental 3: Reporting Capable Secret #3: Risk The construction industry has one of the highest failure rates when compared to other industries. There are many causes of all types of businesses failing, especially those in the construction industry. However, it is safe to say that one construction project gone bad could cause a company to fail. Many of the decisions that take place within a construction firm are made with the end goal of mitigating risk. There are many places where a construction company is exposed to risk, but lets discuss the ones specifically associated with the payment process. Risk can increase when compliance documents like insurance certificates are not up-to-date, lien waivers are trailing behind payment, sub-tier or supplier waivers are not being tracked, or lien waivers are filled out incorrectly. Construction industry business owners are exposed to a significant amount of risk. 64% of construction businesses fail within 5 years* Compliance documents are not up-to-date Trailing lien waivers Lack of sub-tier tracking Incorrect lien waivers How the payment process contributes to this risk: *smallbiztrends.com 8

10 Fundamental 3: Reporting Capable Secret #3: Risk There are several secrets to how a cloud-based payment management software can help lower the risk exposure implicit to the payment process. First, a direct ACH payment is made in exchange for current lien waivers. A platform like Textura acts as an independent third party in this process by helping manage this exchange, which eliminates trailing lien waivers and also potentially speeds up the payment process to improve cash flow. Also, on the system payments can be held automatically if compliance documents are not up to date. Many times contractors make payments without verifying the subcontractor or suppliers compliance status. Since all parties have real time access to this system a subcontractor or supplier will always have visibility to their compliance status and can upload new documents before expiration. With a system like this the payer can be sure they are only going to pay someone that has up-to-date compliance documents. Lastly, because of the centralized project financial database, this solution insures the amount on the invoice, lien waiver, and payment will always match. Risk Mitigated with a SaaS Solution: Direct ACH payment is made in exchange for current unconditional lien waivers Payments can be held automatically if compliance documents are expired Lien waiver will always match invoice and payment 9

11 Fundamental 5: Automatic Archive Secret #4: Collaboration Whether you call it communication or transparency; the construction industry has struggled with how to collaborate effectively with each other. This lack of collaboration is partially a result of the methods of communication as well as the lack of an incentive or willingness to collaborate. As you look at the payment process, the method of communication is partially causing this challenge. Many people use Excel forms, , mail, fax, or other closed-ended systems during this process. All of these formats do serve a purpose, but ultimately make it difficult for everyone to have visibility into the status of a project during any given draw period. There are limits that should be created regarding who has visibility to what information, but does everyone on your project team have the information they need, when they need it, to do their job? If not, a cloud based payment management solution may be the answer. Current Industry Collaboration: Owner End Result: General Contractor Lack of visibility Delayed payments Additional costs Subcontractor/Suppliers 10

12 Fundamental 5: Automatic Archive Secret #4: Collaboration With a cloud based payment solution, each participant has access to the project financial database and can see the status of their current actions. For a general contractor, this gives increased visibility to help identify where each project is financially, as well as to help anticipate where trouble may occur before it happens. When it is time for a subcontractor or supplier to enter an invoice all prior payment information is up-to-date and calculated correctly, leading to less errors on their payment applications. The outcome when collaboration occurs in this process is potentially faster payments for all, less mistakes, a quicker and more green project delivery, and hopefully increased profitability for all parties. While this type of solution won't guarantee people will be more willing to collaborate, it will provide a platform to allow it to occur. Collaboration with a SaaS Solution: A centralized project financial database can be accessed by all team members Automated communication notifies team members of required actions All payment documents are exchanged or created in the cloud Owner End Result: General Contractor Subcontractor/Suppliers Faster payments Less confusion Greener project 11

13 Fundamental 5: Automatic Archive Summary There are multiple challenges and headaches that accompany the construction payment process. From accuracy or efficiency, to risk and collaboration, there are many areas that should be addressed to improve this process. A cloud-based payment solution provides real-time access to a centralized project financial database and streamlines the communication that occurs during the draw process. By taking the process online significant efficiency gains can be achieved through eliminating the very manual process of managing invoices, compliance, and payments. Risk can also be eliminated through insuring a lien waiver receipt for payment always occurs with up to date and accurate financial information. Lastly, additional collaboration through an online solution allows for improved communication and the potential for project participants to be paid in a more timely fashion. Learn More: Request a Live Demo Visit Our Website Watch a Webinar 12