Story at a glance:
- Outdated billing processes and software can delay you from getting your revenue.
- ClientPay explores ways to recapture lost revenue and improve payment processing overall.
- Construction businesses say slow payments significantly contribute to wasted resources and less profit.
Most building and design professionals experience longer collection periods. In fact, the average firm in the AEC industry has an outstanding accounts receivable period of 74 days. That means there is typically a three-month gap from the time you’re invoicing clients for a completed project to the time you’re getting that revenue in the door. There are several reasons why this extended payment cycle has become the norm, but one of the most prominent is the use of outdated billing processes and software.
Of course, delayed payment isn’t just an annoying issue; it’s also costing you significant amounts of time and money. Many building and design professionals are shocked to learn just how much cash is being left on the table as a result of slow payment processing.
Here we’ll take a look at a few ways outdated billing could be costing your business, as well as ways to recapture lost revenue and improve your payment processing overall.
How Outdated Billing is Costing Your Business
In a survey conducted by Levelset, construction businesses reported that slow payments significantly contributed to wasted resources and reduced profit. One of those valuable wasted resources is time.
We can assess the value of time in a variety of ways, but for the purposes of your business, let’s look at inflation. Every year the dollar bill is worth less and less. Ten years from now a dollar will still be a dollar, but everything will cost more than it does now, rendering the currency less valuable. In March 2022 Trading Economics reported the US inflation rate was the highest it’s been in 40 years at 8.5%.
You might be wondering, “How does this affect my business?” Every day you work without getting paid, the money you earn is losing value. Essentially, when you receive late payments or payments made by paper check (which takes longer to reach you and clear the bank), you’re taking on an additional inflation rate, which eats into your profit overtime.
Another way late payments or slow billing can affect your business is by decreasing productivity. In fact, 83% of subcontractors claim late payments from a general contractor affects productivity. If client payments are not being received by general contractors on time, they are often unable to pay subcontractors, which either results in halted projects or out-of-pocket costs paid by the general contractors.
Every business needs consistent profit to grow year over year. When payments are delayed, it means less revenue throughout the year. For example, a contractor who sets a two-week invoice deadline is going to make more profit within a year’s time than a contractor who has to wait anywhere from 60 to 90 days to get paid.
According to Rabbet’s 2021 Construction Payments Report, general contractors and subcontractors estimate the cost of floating payments for wages and invoices represents $136 billion in excess cost to the industry—a 36% increase from the cost reported in 2020.
How Updating to an Online Payment Solution Can Help
Fortunately, by improving your billing process, you can improve payment delays and reclaim lost profit for your business. A number of building and design professionals are doing themselves a disservice by operating with an outdated payment processing system. By moving your payments to an online software, you can not only reduce invoicing delays, but also increase revenue and cut unnecessary administrative costs, all while keeping your clients satisfied.
Cheaper Than Paper Checks
First and foremost, your business needs to move beyond paper checks. You might be thinking to yourself, “But I’ve always used paper checks for my client transactions. Why would I switch?” Well, for one, using paper checks is quite costly. According to Bill.com, paper checks cost a business up to $24,540 annually in terms of employee labor, materials, bank fees, and postage. Additionally, paper checks take far too long to process. From the time it takes for a client to put the check in the mail to the time it arrives to you, plus the time it takes to clear the bank (if it does), as much as a week can pass before the money is in your account.
By adopting an online payment solution you’re offering your clients the ease and convenience of being able to pay you from anywhere at anytime—meaning you get paid anywhere anytime.
Accepting online payments also means your clients can use a variety of payment methods, which even gives them the option to use a credit card to cover a costly project. This would allow you to receive payment instantly and upfront, avoiding any out-of-pocket costs down the line.
As we’ve discussed, speed of payment is everything. Delays are costly and can have long-term effects on your business. An online payment solution provides instant and secure payment processing. No more waiting for a check to clear the bank, no more delayed or failed payments. You will have instant verification that a payment has gone through and revenue is being made. This means you can avoid project delays and ensure your employees or subcontractors are paid on time.
Easy Reconciliation and Reporting
Using an online payment solution also makes it easy for you to keep track of who has paid you and who hasn’t. With easily accessible in-depth reporting and automated invoicing, it’s no longer a huge headache to track down missed payments. You’ll also find having these transaction records at hand can protect your business in the event of a payment or chargeback dispute.