The construction sector accounts for about 4.4% of U.S. GDP and is tied to about $2.2 trillion in annualized spending.
On Monday (Dec. 2), the Commerce Department reported that construction spending was higher than consensus had estimated, where growth was 0.4%, and economists had expected 0.2% growth.
The segment, of course, is capital intensive in the way that few other industries are — PYMNTS has reported that 76% of subcontractors say they are almost always paid by general contractors and property owners with paper checks, which in turn means that slow payments cost these firms $273 billion.
We found earlier this year that subcontractors were increasing their use of personal savings for business purposes by 105% over 2023’s levels. The consequences are of such concern that more than 9 in 10 subcontractors say they would offer a discount of up to 5% for speedier payments.
Last month, in joint research from PYMNTS Intelligence and Ingo Payments, 23% of construction firms with automated accounts receivable (AR) processes experienced no AR challenges in 2023, while three quarters of executives at mid-sized construction firms said that accounts payable (AP) automation improves cash flow. There’d been a groundswell in investing in technology and improving the back office, as amid the housing slump last year, roughly a third of construction firms invested in cloud-based and digital AP tools.
We found, too, that 33% of companies surveyed were planning to adopt integration between AP and AR and 31% plan on adding instant bank verification and virtual cards for making payments to suppliers.
Recent announcements surrounding platforms and digital innovations, and PYMNTS Intelligence’s own spotlighting of external financing has underscored the modernizing of this most smokestack of economies.
In one recent example, from last week, Constrafor said it had raised $264 million in a Series A round. The funding will be used to expand its technology platform, designed to improve the relationships between subcontractors and general contractors. The platform offers procurement tools, simplified invoicing and payments functionality.
Elsewhere, Priority Technology Holdings, in its most recent quarter, noted growth in its B2B-related revenues, which underpinned a 20% surge in consolidated top line, and where construction remains a key segment for innovation. Last year the company had introduced its X Build offering that helps construction companies streamline payment.
Over the summer, Adaptive raised $19 million in a Series A funding round to scale its artificial intelligence-powered financial platform for businesses in the construction industry, which manages over $1.4 billion of project volume. The platform manages budgeting, cash flow analytics, expense tracking, accounts payable, accounts receivable, vendor management and electronic payments.
In the PYMNTS Intelligence report, “The 2024-2025 Growth Corporates Working Capital Index,” commissioned by Visa, the data shows that 98% of middle market firms (defined as $50 million to as much as $1 billion in top lines) in the construction sector used at least one working capital solution: 44% more companies used those tools strategically to grow their business than had been seen last year. And the report found that 46% of construction firms viewed the use of virtual cards as primarily a payables solution.
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