Published on May 03, 2022.

Cloud-based and mobile-friendly, fintech solutions are poised to revolutionize how contractors pay and get paid.

Jeff Scalisi, vice president of operations at Livermore, California-based Architectural Glass and Aluminum, had no idea his company’s billing had issues until a tech solution came along to fix them.

Scalisi was reluctant to turn over something he believed “needed to be controlled by us” when he was contacted by a representative from Siteline, a software tool designed specifically to automate trade contractors’ billing process, three years ago. 

When he learned that Siteline could keep all of AGA’s insurance documents in one place and seamlessly complete 30-, 60- and 90-day billings, even on smaller projects, he had to give it a try — and now he’s hooked. 

“We were doing everything with spreadsheets, Word documents and files on servers,” Scalisi said. “I didn’t even realize how clunky it was.”

Siteline is one of a handful of financial tech, or fintech, solutions that have cropped up in recent years to handle the billing and payment complexities unique to contractors. Often launched by entrepreneurs with family ties to the construction industry — who have seen firsthand how capital flow can make or break a company — these technologies track and measure everything from material allocation and delivery to financial projections to compliance to risk management, keeping projects running on time, on budget and profitable.

“The reality is that most fintech companies have ignored really difficult industries like construction,” said Zaid Rahman, founder and CEO of Flexbase, which merges a payments platform with a line of zero-interest credit in what Rahman hopes will transform construction payments the way Stripe reshaped e-commerce and Square recast point-of-sale purchasing.

“We’re reimagining how money moves in and out of a construction company,” said Rahman, who comes from a family of builders and architects and heard countless stories around the dinner table about their cash flow struggles. “We think there’s an opportunity to create an experience that’s designed for builders by builders.”

Flexbase’s first product is a high-limit, zero-interest corporate credit card that he described as “effectively, a free float” for 60 days, allowing contractors to buy materials without tying up all their capital while they wait for client payment.

When contractors use the Flexbase card, they also plug into a system that automates the flow of payment documents, including schedules of values, lien waivers, notarizations, prevailing wages and insurance and compliance while helping contractors track deadlines.

Construction billing has traditionally been a “notoriously complex, manual, paper-ridden process,” said Siteline founder Gloria Lin, whose father was a civil contractor. “And the kicker is, even if it’s a penny off, if the paperwork is not perfect, it gets bumped to the next payment cycle 30 days later. It can stretch on and on, and that’s super painful for trade contractors.”

Risk management

Slow payments to general contractors and subcontractors cost the industry $136 billion in 2021, a 36% increase over 2020, according to the annual Construction Payments Report from Rabbet, a fintech company serving real estate developers and construction lenders. When asked what they would change about their payments process, many contractors reported the need for automatic, instant or direct payments.

“Unforeseen uncertainty in the supply chain requires contractors, developers and lenders to take a collaborative approach toward addressing price and schedule risk in 2021,” Rabbet CEO Will Mitchell said. “The pandemic further illuminated existing process challenges, and the need for transparency, automation and centralization in construction payment processes has never been greater.”

In its 2021 Construction Cash Flow & Payment Report, Levelset, which offers a suite of software that digitizes payment processing and helps contractors finance materials with extended payment terms, found that 79% of construction businesses that accept electronic payments get paid faster. 

Levelset also helps with risk management by sending alerts when another contractor working on a project is having payment problems and monitoring jobs for red flags like mechanics liens so “you can protect yourself and get ahead of slow payments,” said Andrew Dunn, Levelset vice president of financial products.

User friendly

Cloud-based and mobile-friendly, most fintech solutions require very little, if any, training. Payment and financing platform BlueTape, for example, lets contractors make and receive payments on their mobile devices via text. They don’t even have to download an app. 

“Sometimes, when we have initial conversations with contractors, they can be skeptical — it seems too good to be true when we tell them this doesn’t have a big installation or integration piece,” said BlueTape Co-founder and CEO Yaser Masoudnia. “But once they try it out with a couple customers, they love it and immediately scale it up to use with all their customers.”

Siteline’s Lin, who helped build the prototype for Apple Pay and was the first product manager for Stripe, and her co-founder, Joel Poloney, who brought gaming to the masses as the co-founder and lead developer of Farmville, understood the importance of keeping their solutions “dead simple,” Lin said. 

“It’s easy to use but also a powerful tool,” Lin said. “We handle a ton of complexity in the background while presenting things in a simple interface to users. Our customers tell us it feels like magic.”

Original article: https://www.constructiondive.com/news/contractors-turn-to-payment-apps-to-speed-billing/622673/