Most contractors working in commercial construction projects pay for materials long before receiving payment for their work. In fact, 74% have terms with their suppliers of 30 days or less, yet the time they wait to get paid for their own work averages about 85 days. It’s probably no surprise, then, that 46% of contractors struggle to make ends meet with such lumpy cash flow.
In the face of this imbalance, construction material financing specialist Billd and industry software firm Procore have teamed up to create a new program for commercial subcontractors that quadruples the pay-back time on supplies to 120 days.
“This has always been a dysfunctional part of construction that the subcontractor takes the brunt of,” Chris Doyle, CEO of Billd, told PYMNTS when explaining the problem his company aims to solve.
In their official announcement on Sept. 8, Billd and Procore said the funding program not only helps contractors by giving them access to upfront funds, but also enables suppliers to sell more materials with less risk. Together, they said the goal is to offer contractors a comprehensive solution to secure critical project financing, while also helping to streamline project management and materials procurement.
Seamless Info Exchange
Users of the Procore software will now be able to access financing through the platform and integrate their projects with Billd’s own site. “It’s essentially an integration between the two platforms,” Doyle said.
In short, Procore users and Billd customers who use Procore will be able to seamlessly exchange project information and gain better access to the purchasing power to buy materials.
Because Billd makes project-based decisions, Doyle said the ability to more easily capture information about a job will enable it to offer enhanced purchasing power to the contractor. “Just like any lender would do, if they have access to more information about the customer, they’re able to take more risk,” he explained. “That’s the same for us, easing the burden of the contractor to necessarily provide that information.”
A Longstanding Challenge
Historically speaking, Doyle said contractors have generally coped with the long payment terms in the construction industry by keeping a war chest of cash on hand, managing across different supplier terms — or worse, by just being constrained and unable to grow. “There haven’t been a lot of companies that have gone out and tried to do something about it, at least from the bottom up,” he said.
Billd is able to provide 120-day terms because it is vertical-focused and has built a variety of industry-specific proprietary analytics tools to assess risk in the construction industry. Traditional credit metrics are poor predictors for risk in this vertical segment.
“Traditional banks, for the most part, are adverse in the construction space,” Doyle said. The time it takes contractors to get paid is unpredictable, varying from project to project. It could be 10 days, 30 days, 60 days or 100 days. Yet they have to front all the costs of the project. “These innate features or attributes of the business are not attractive to [traditional] banks,” Doyle added.
To that point, contractors need only submit standard contact information on an application, which takes five or 10 minutes, before Billd conducts its due diligence. As far as repayment is concerned, Doyle said it is “fairly standard” and done exclusively via ACH.
Although their construction materials financing partnership is new, Billd and Procore are already mulling new ways the two companies can combine their tech and expertise to offer additional services to contractors.
“We’ve made a number of steps in the partnership, and a lot of things are on our radar to continue developing,” Doyle said. “We’re just really at that first stage, and looking forward to expanding and providing more value to our mutual customers.”
