B2B payment delays can crush a small business in any industry. Often considered a cash flow problem of larger corporates waiting longer to pay their small suppliers in an effort to protect their own financial positions, delayed B2B payments create a domino effect of consequences, including late payroll and bill payments.
The construction industry has garnered a notorious reputation for its B2B payment challenges. A mix of complex supply chains populated by contractors, subcontractors, suppliers and more, as well as the industry’s struggle to modernize back-end workflows, has created an environment in which B2B payment delays and cash flow bottlenecks can run rampant.
FinTech is stepping into ease that crunch in a variety of ways, with trade financing tools that can support the cash flow needs of both buyer and supplier. But Billd CEO Chris Doyle notes that it’s not necessarily longer payment terms that are causing the financial headache.
Speaking with PYMNTS, Doyle pointed to some of the sector’s unique characteristics that have opened the door for financing to find the win-win on either end of a B2B transaction, and provide something more valuable than B2B payments speed: predictability.
Understanding The Industry
Having industry-specific expertise when tackling cash flow pain points can be essential for FinTech solutions of all kinds, and that includes the construction industry. Doyle said having knowledge of the construction industry’s particular challenges is important to knowing the most effective way of solving them.
It’s a market in which B2B payment delays and cash flow constraints are widespread.
“We never get on a phone call with a prospective customer and they say, ‘No, I don’t have this problem,'” said Doyle. “We all know the problem in the construction space.”
Unique to the market is that, unlike many other sectors, the materials suppliers in construction are often the larger enterprises in a B2B transaction, and thus tend to hold much of the leverage.
That can tip the scales out of contractors’ favor when they attempt to access traditional financing from a bank. According to Doyle, by incorporating the large vendor in to the financing equation — that is, by paying the supplier upfront, rather than financing the contractor customer — it allows higher credit limits than other funding strategies. Contractors’ desire to extend payment terms to 90 and even 120 days comes from their own need to protect cash flows, but can come at a cost in the form of missed discount opportunities. Accelerated supplier payments via a third-party financier can lower costs for those contractors, too.
Also unique to the industry is its high-stress, and highly mobile, nature. Contractors are often on the go and in need of FinTech tools that offer support for mobile devices and embedded payments capabilities that streamline payouts (as well as seamless financing repayments for the suppliers).
Cash Flow Predictability
Integrated digital payment experiences in the construction trade finance space are key to finding success in the industry — especially, said Doyle, as the sector finally embraces modernization.
Indeed, he said, the inroads carved by construction-targeting technology platforms have paved the way for FinTechs like Billd to step in and gain traction, too.
Innovation in payments has also unlocked value propositions for construction financing, which is able to digitize transactions to accelerate financing for suppliers and capture early payment discounts for contractors. ACH and wire remain the most common transaction methods for Billd, said Doyle, noting that the firm rarely makes payments via check and, when it does, encourages recipients to migrate to electronic payment acceptance.
Yet Doyle also noted that innovations like real-time payments are not necessarily key to making a positive cash flow impact in the market. ACH and wire payments are fast, but what makes the financing proposition so valuable isn’t payment speed.
“It’s all about predicability,” he said. “The thing is, if payment terms were always 90 days, it would be an efficient process because it would be so predictable and risk would be really low.”
The problem, he continued, is that sometimes payments come in 30 days, and sometimes they come in 120 days. It’s the unpredictability of cash flow that creates the true friction.
Billd recently secured a $30 million Series B funding round for its financing technology, with investors at LL Funds leading the way (while RTJ Credit and Ulysses Management also participated). Doyle said the investment will fuel customer acquisition and help the firm explore partnerships and integrations with other technology platforms that players in the construction industry already use. New product development and talent recruitment are also on the docket.
Delayed supplier payments caused by cash flow crunches remain a critical point of friction for the industry, but not the only one. Doyle highlighted payroll challenges as another area for complication thanks to the outsourcing of work to independent crews.
It’s a practice that can make labor funding a difficult puzzle to solve for third-party financiers, but as industry digitization continues to make headway, more data will be available for FinTechs to mitigate risk, more platforms will be in place to embed financial services within, and more opportunities for cash flow solutions built just for the construction arena will arise.
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