During the recent ConstructConnect’s 2018 Design & Construction Outlook webinar, Kermit Baker, Chief Economist for the American Institute of Architects, and Ken Simonson, Associated General Contractors of America (AGC) discussed the outlook of the construction industry for 2018. According to Kermit, there was a steady increase in price of materials in 2017, and those prices are expected to stay high in 2018. There is also the rising cost of skilled labor and the continuing labor shortage. Demand for construction is expected to grow, but growth will be slow and competition will only continue to increase.
“The figures that came out this morning showed that the latest September to September construction spending change was a positive 2%,” Simonson said. “On the other hand, the August number was revised downward. So we’re really only barely where we were almost 12 years ago, and that is without taking inflation into account.”
Taking all of this into consideration, construction companies will need to save costs and operate more efficiently in other areas to stay competitive in the marketplace. One solution is to automate Accounts Payable (AP) with virtual card capabilities that allow the company to earn money back from their payables process. The industry dictates that every dollar spent must be a productive one. What better way to ensure that dollar-productivity than realizing a guaranteed rebate dictated by a percentage of the company’s spend?
Following are the top six reasons to automate AP in construction and strengthen your business:
- Problems Caught Earlier
Catching problems or identifying mistakes early in the construction process is essential. If you need to deal with issues with the subfloor (think termites, mold, or structural damage), it’s much easier (and cheaper) to fix the problem before the concrete flooring has been poured and hardened. With AP automation, you can see issues before they happen. Project managers in the field can use tablets or mobile devices to log accurate, timely data, and approve invoices on the job site once completed. AP automation can also alert you to compliance infractions, like expired insurance certificates for a sub-contractor. It also gives you full visibility into your accurate spending – ensuring that you can compare the current spend to the estimate in real time and make changes on the fly if needed.
- Fraud Reduction
Construction companies were involved in 3.9% of reported occupational fraud cases according to a 2016 Association of Certified Fraud Examiners (ACFE) report, making it the eighth most common industry to have occupational fraud. When measured by median loss, construction ranked sixth out of 23 industries at an average of $259,000 per reported occurrence. AP automation can prevent some of this fraud by detecting fraudulent patterns, providing full control of employee spending, establishing approval processes, identifying invoice errors, and flagging vendor inconsistencies.
- Control Rogue Spending
To keep rogue expenses to a minimum, implementation of a compliance system that keeps digital records of all expenses can eliminate the opportunity for unapproved spending and make reconciliations much simpler. With all documents in one place, it’s easy to monitor trends for each vendor you work with and it ensures you hire responsible sub-contractors by tracking their spending in real time. It also ensure you won’t run into the problem of your sub-contractor being paid 80%, when only 50% of the work is complete, due to lack of visibility into payment details.
- Increased Staff Efficiency
Many construction companies currently have AP staff who are spending 60% of their time dealing with papers and data entry. With an automated AP system, the role of your AP team can shift – they can become analytical problem solvers who can eliminate issues before they exist instead of putting out the fires that are already there. They can do more with less and become more efficient. Automation allows your AP team to better forecast, anticipate conflicts in the building process, and keep track of changes to the project plan to ensure the costs stay in check.
- No More Missing Invoices!
Has your project manager ever lost a paper invoice in the construction zone or in their truck? Has your accounting clerk misplaced an invoice in the stacks of paper in their office? Have you come across an invoice that was months old and never paid? In an automated system, you no longer have to worry about finding the invoices – you will know when one comes in, which balances are outstanding, when payments are due, and where the payment is sitting in the approval workflow. It also ensures full visibility for executives and account managers to accurately manage projects.
- Happier Vendors
On average, it takes 2-3 weeks for a construction company to process an invoice, and payments are traditionally sent via paper check. 5.4% of these payments fall in the “serious late payment class” of more than 90 days post. Ditch the manual paper processes and switch to an automated system that will allow you to pay your vendors faster, which will create a stronger relationship between you and your vendors.