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Managing construction payments – how do we resolve the issue of late payments?

Last Updated by Dominic Davison

News reports seem to emerge on a daily basis proclaiming the urgent need to expedite payment processes in the construction industry. These reports place great emphasis on the repercussions of late payments, but lack thorough attention on how change might be implemented. Instead of dwelling on the problems, there needs to be more discussion on how we might resolve this never-ending issue.

A recent report by CN (Construction News) showed that some of the UK’s largest contractors have pledged to improve their payment practices. The report found the biggest 20 contractors take 47 days on average to pay suppliers, whilst 38% of invoices are not paid on time. The report identified that many of these organisations have improved their payments terms and have pledged to do more. In fact Balfour Beatty, the UK’s largest contractor, has openly stated that it was ‘working to speed up payments through more automation of its systems.’

For large organisations, payment processes can be time-consuming and complicated, often involving large volumes of manual paperwork. Using technology to automate the processes is the logical step; it is one that can bring positive outcomes and quickly. So how can these issues be resolved using technology?

Software to manage subcontractor payment applications and processes

Late payments in the construction industry can occur for all sorts of reasons, whether it is from internal admin errors or lack of cash flow management. Complications can occur across the supply chain, where problems can emerge for many reasons. From the complications listed above, however, it is clear reliability is a real issue. With companies under significant pressure, not least in terms of payment but staffing, recruitment and contracting work, what is the solution to alleviating these stressors?

Digitised portals which manage payment processes are a potential solution. Systems such as Open ECX’s WebContractor provide end-to-end management of applications for payment in construction, ensuring complete transparency and accessibility across the supply chain. It is a cloud-based portal for subcontractors to upload payment applications so contractors can manage payments more effectively. As the portal can be accessed anywhere, it is an efficient alternative to submitting paper-based documents or sending applications for payment by emails.

Subcontractors can upload their applications anywhere and at any time – they aren’t restricted to their office but can complete payments onsite, at home or while traveling elsewhere. Portals such as WebContractor ensure visibility across the supply chain, minimising risk to business. As there are no hidden subcontractor costs, payments can be made reliably, removing the threat of litigation for instance.

Software to manage supplier invoices

There are other tools which can speed up otherwise manual processes, such as e-invoicing. With Open ECX’s eInvoicing platform, buyers can electronically manage multiple invoices from many suppliers. Although most suppliers now send invoices electronically, by email for example, they still tend to be processed manually. Open ECX offers something different; an eHub which converts emailed PDF invoices so they are automatically accepted and processed by the company’s own finance system.

This system is a great mechanism for managing construction invoices efficiently and securely. Not only does the system recognise duplicate or invalid invoices, it ensures all emails come from a genuine supplier. Open ECX’s eInvoicing has all bases covered; from dependability, to service, to maximum security.

Whilst construction payments have quickened over the past year or so, there is still work to be done. Embracing technology and automated processes is one way to reduce processing time, and to check and authorise construction applications and invoices. Providing contractors and subcontractors with visibility of what stage their payments are at is also essential. For those who have adopted an automated process, the benefits are speaking for themselves. For those who haven’t, they are truly worth considering.