Contractors and vendors that work with facility owners, especially large organizations, know that it takes time – sometimes months – to get paid. While vendors may think that owners drag out payments to preserve cash (and some do), most owners know that paying faster is actually the smart thing to do.
Owners that are constantly building know that developing a reputation amongst the tight network of construction vendors as a slow payer will result in increased costs of construction on future projects. Vendors figure they will have to wait to get paid so they build that carrying cost into their bids. The result is long term, increased cost of construction for the owner which is significant.
Savvy owners know this – but they still take too long to pay. Why? The internal payment approval process in a large organization is unbelievably complicated. This is especially true for large contractor invoices which are unlike any other invoice the facility will come across.
We’ve seen some of our clients break the slow pay cycle by using software to improve the routing and approval process and then integrating the software with the corporate accounting system. Once a payment request is approved, the financial information is automatically transferred into the accounting system where funds are authorized and disbursed. One of our clients managing about 250 active projects totaling $464 million, managed to squeeze 85% of the approval time out of the process. They reduced the payment application processing time from 13 days down to 4, and then down to 1 day with the help of our system.
Owners everywhere are incorporating these systems into their construction management process. If you are a contractor or a vendor, you may be asking yourself, “how do I get involved within some of these fast paying owners?” In my next post I will provide some insights.
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