Most commercial construction businesses think about financial technology only when it comes to paying their large and often fragmented supplier base.

But the right payment solution can make the payment process more efficient while addressing other critical business challenges and improving payment visibility for all stakeholders.

Payments Matter to Everyone in Commercial Construction

General contractors aren’t the only ones that must manage, receive, and disburse payments during a commercial project. Other key stakeholders, like owners, developers, lenders, and suppliers, are just as invested in the effects of effective and secure payment processes.

“The entire value chain stands to benefit from streamlined and transparent payment processes,” explains Wayne Alley, executive vice president of risk at general contracting and construction management firm VCC Construction, “especially given the interconnected dependencies that exist due to paid-when-paid contracts and the presence of lien risk from downstream subs-of-subs and material suppliers.”

Owners and Developers

Commercial owners and developers must track and make payments not only to general contractors, but also to other service providers for costs like architectural fees, engineering, and insurance. Owners and developers also benefit from traceability and security provided through the isolation of project funds and assurance that payments are made to subs and suppliers downstream, significantly reducing lien risk.

Subcontractors

Subs can use digital payment solutions to pay lower-tier subs and suppliers without delay — all while collecting digital lien waivers. This automates the process, ensures compliance, and reduces the potential for mistakes that further postpone payments from the general contractor.

Lenders

Payment solutions that offer funds control ensure lenders that project advances stay within the right project. They do this by requiring general contractors to pay only the subcontractors and vendors associated with that specific project.

Bonding Companies

Bonding companies benefit from project-level fund control with full transparency. The right payment solution ensures that contract proceeds are used for the right project, a key component to reducing financial performance risk. (In other words, contractors can’t “borrow” from one project to fund another.)

Construction Managers and Owners’ Representatives

Construction managers and owners’ representatives can leverage distributed approval rights for payments made on actively managed projects, with full transparency into the use of funds for projects.

What to Look for in a Dynamic Payment Solution

If you want your payment platform to address the unique needs of all constituents in the commercial construction ecosystem, then it requires characteristics that can’t be found in traditional payment processing platforms. For example:

• The ability to manage permissions based on user roles allows you to set up role-specific access to functions inside the payment platform. “This allows external parties to be involved in certain workflows without having full access,” explains Alley.
• Embedded banking isolates project cashflow in a funds-control situation. Alley can create bank accounts to segregate funds and support various payment methods, such as ACH deposits and paper checks, to accommodate all payee types within each project.
• A web-based platform makes the system easy to configure for a specific project without requiring onsite software implementation or coding.
• Secure processes support tokenized bank connections, geofencing, and real-time alerts about potential fraud.

What a Flexible, Dynamic Payment Solution Offers to Construction Companies

“Payments to subcontractors and vendors are a major source of potential risk since cashflow is the lifeblood of our industry,” Alley says. “Vendors need to be paid so they can support their material and labor needs. By using a payment solution to pay quickly, efficiently, and with transparency, general contractors reduce lien risk, avoid downtime, and increase work in place from subcontractors, allowing them to meet deadlines.”

Streamlining the payment process and establishing visibility also increases productivity and compliance, while effectively facilitating collaboration and communication among internal and external project stakeholders.

Historically, the commercial construction ecosystem relies heavily on trust. Parties must have confidence that other stakeholders are taking their perspectives and demands into account when making decisions.

“Owners pay the general contractor with an imputed level of trust that the general contractor will pay the subs and vendors,” Alley says. “If they don’t, the owner may ultimately be responsible for making a redundant payment to settle liens based on non-payment to suppliers and subs of subs. Likewise, subcontractors are willing to sign a paid-when-paid contract with the expectation that the general contractor will work diligently to collect payment from the owner and, in turn, make a payment to the subcontractor.”

The right payment solution makes this process completely visible and trackable, with a financial audit trail of all payments, when they were made, and to whom they were submitted.

The Real Impact of a Dynamic Payment Solution

To manage risk and protect client capital during a unique project, VCC leveraged Struxtion’s payment platform to manage the payment process, working in a construction-manager capacity to help identify a general contractor to execute the work.

As Alley describes, a digital bank account was established to control the funds provided by the owner. Each month, the owner’s payment application was paid into a controlled account via the platform. Payment instructions were digitally uploaded by the general contractor for all subcontractors and vendors during the payment period, then approved by the VCC as the construction manager.

“As the construction manager, we approved the payments, isolated the cash for those payments, and provided checks and balances on the payments made with the owner’s capital,” he explains. “When a payment is made, Struxtion collects the unconditional lien waivers. We have access to the payment verification and waivers. This solution has provided us with a unique and vital combination of digital banking, workflow approvals, and digitally executed lien waivers that increases the speed, security, accuracy, and transparency of capital.”