With annual expenditures of over $1.2 trillion, the U.S. construction industry is among the world’s largest. With this activity, U.S. construction companies will spend in excess of $10 trillion on goods and services, while employing over 10 million workers.
With a somewhat positive outlook ahead, construction companies face challenges every day, including labor shortages, increased material costs and safety compliance. On top of this, an October 2019 brief published by Construction Dive highlights that lengthy payment times to contractors and subsequently to their subcontractors cost in excess of $64 billion per year, up from $40 Billion in 2018.
Construction Dive noted a staggering 51-day average payment turnaround, forcing many downstream contractors to cover expenses with alternative means of financing such as lines of credit or credit cards. This number is staggering as it does not reflect the practice of an e-Builder software user!
Slow payments negatively impact project owners as well. At best, project completion times are affected while unplanned project costs by way of late fees ultimately prevents more building. Even worse, contractors will walk away from a specific job or refuse to bid on future projects once a reputation for late payment has been earned.
To emphasize the importance of working capital, the contractor will routinely offer discounts in exchange for expedited payment. Pay fast, save money and continue attracting and retaining the best contractors in a competitive market.
Memorial Hermann, one of the largest not-for-profit health systems in the nation, was a late payer. They now pay in under 10 days. Contractors love them and their costs are lower. This is not a fluke.
Inova Health, with over 45 locations and serving more than 1 million people, dropped their contractor application for payment time from 29 days to 9 days, while reducing invoice processing time to less than 3 days!