5 Reasons Your Construction Company Should Automate Payments

June 16, 2022
Michael Heinsdorf
Product Alliances and Corporate Development
5 Reasons Your Construction Company Should Automate Payments

By Michael Heinsdorf, Director of Product Alliances and Corporate Development, Deltek 

Maintaining the right balance of incoming and outgoing cash flow is important for any company that wants to keep their doors open. But for project-based construction companies on the smaller end of the market, this delicate balance requires additional scrutiny to ensure clients are paying their fees and vendors are getting paid in a timely manner. And when those processes are being managed across disparate systems, while still relying on printed paper checks and snail mail, that balance can be nearly impossible to achieve or maintain.

The solution is to digitize and mechanize those processes through Accounts Receivable (AR) and Accounts Payable (AP) automation, which leads to a variety of benefits, not least of which includes reducing the burden on your accounting team.  


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What is AR and AP Automation?

AR Automation is the process that streamlines inbound payments from your clients, which helps your accounting team eliminate reconciliations and reduce days sales outstanding (DSO) by replacing manual processes with digital transactions. It transforms the paper-based process of printing and mailing checks to your vendors or suppliers into a digital process that allows you to select, process, schedule and make payments against your accounts payable.

Why Should You Automate Your AR and AP Processes?

#1 Focus Limited Time and Resources on More Important Tasks

If you are like many small to mid-size construction contractors today, getting paid isn’t the simplest process. The many steps may include:

  • Sending the approved pay application or invoice to your customer.
  • Following up via phone or email to make sure they received the pay application or invoice and asking when the payment will arrive.
  • When the payment arrives as a check it needs to be deposited—which means that someone must go to the bank.
  • Once the check is deposited, it then takes two to three days to clear.

In some cases, you may have customers paying you by Automated Clearing House (ACH) or credit card, which requires reconciling the payment with the general ledger. That means someone needs to spend time figuring out who the payment was from and what it is for. And that assumes that the ACH information was inputted correctly and that it was a full payment against an invoice.

Through AR Automation, contractors can provide customers with a way to pay their fees electronically, which then eliminates the time it takes to ensure payments were made, cleared and reconciled against the ledger.

#2 Get Paid Faster and Improve Cash Flow

A major advantage of accepting electronic payments is the ability to get paid faster and improve your cash flow. By accepting ACH and credit cards, your payments can show up same day or within a couple days of the customer getting a click-to-pay link. How often does that happen with a paper invoice? And when you get paid faster, DSO is reduced which improves incoming cash flow, and allows you to pay your suppliers. Here is where the delicate balance is achieved.

#3 Stay Competitive in the Market

By offering a modern and secure payment portal for customers to pay their bills electronically, you’re showing them you care about their experience and want to save them valuable time. This goes a long way in solidifying customer loyalty and boosts your reputation in the market.

#4 Increase Visibility and Security, While Mitigating Risk

While physical paper checks have their place, and are essential for some payments, it’s a good practice to keep check stock on hand for those one-off payment situations. But if you want greater control and visibility over every single payment that flows out of your business and optimize your cash flow, that’s hard to do with checks.  

AP Automation may sound like bank-based ACH programs but there are some important differences. Bank-based ACH payments put the burden on you to maintain vendor information, including bank account information, billing addresses, contacts, and more. In some cases, this means accessing a bank portal and inputting payment information, either once or each time a payment is made. If an error was made entering the information, you increase the risk of making fraudulent payments that can be difficult to fix.

With AP Automation, you get the benefit of a standardized workflow, insight and transparency into each one of your payments, with an additional level of security to guard against payment fraud. Not to mention, AP Automation ensures you have the most accurate vendor data, giving your accounting team one less thing to manage. 

#5 Avoid Hassle, Risk and Time Wasted Using Checks and Snail Mail

Unfortunately when using physical paper checks, there can be missed invoices or payments, numerous emails going back and forth about payments, and in some cases, juggling due dates and bank balances.

Additionally, this payment system requires an office-based employee to have a printer, check stock, and access to a delivery or postal services to send the checks out. With construction firms there is often maintain a distributed workforce, that means increased opportunity for fraud and in some cases, even less oversight around payments. And if there is a hierarchy or limits on who can sign, that potentially requires check stock and a printer at multiple locations, not to mention the costs associated overnighting or delivering checks. 

AP Automation takes those paper-based challenges and digitizes the process. Your review and approval process for AP invoices remains the same, but once that payment is approved, the remainder of the process has been reduced to a couple easy steps that can easily be managed digitally from the same place.


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About the Author

As a member of the Deltek Product Alliances Team, Michael Heinsdorf is responsible for finding and managing Deltek's AECO and Fintech partners. He works with prospective Marketplace members to determine fit, integration possibilities and value to Deltek customers. Michael is a registered Professional Engineer (PE) in electrical engineering, who practiced for over a decade before making the move to AECO technology, first with AIA MasterSpec, then to Deltek. Connect with Michael on LinkedIn.