Amex: Payments Tech Builds Healthier Cash Flows In Booming Construction Market

Amex: Payments Tech Builds Healthier Cash Flows In Booming Construction Market

June 02, 2021 at 09:03AM

Rising supply and demand throughout the construction industry can be a fickle beast for the builders, contractors, buyers and suppliers operating in the space.

The benefits of a booming business don’t necessarily trickle down to healthier cash flow — on the contrary, a flurry of business activity can make cash flow quite lumpy on both the buyer and supplier side, particularly for the small businesses of this market.

Access to working capital is critical to smoothing out that cash flow, but traditional lenders remain reluctant to finance small- to medium-sized businesses (SMBs) despite the overall strength of the construction space. Meanwhile, other efforts to optimize working capital can be quickly thwarted by a lack of automation in the back office and the impact of delayed B2B payments.

Speaking with PYMNTS about the most pressing challenges that emerge as a result of major industry growth, RJ Ancona, vice president and general manager, B2B, global merchant and network services at American Express, said construction-sector cash flow troubles have several opportunities throughout the supply chain to support financial health with payments technology.

“The construction, manufacturing and industrial industries are really facing unprecedented challenges,” he said, “but also huge opportunities.”

A Booming Market

American Express’ own analysis of the construction sector revealed an increase in building construction maintenance in the first quarter of 2021 compared to Q1 2020, a trend expected to continue throughout the year. But a quick conversation with friends and neighbors can yield similar conclusions.

“Everyone has been home for the past year, and it’s not surprising that demand is up,” said Ancona, adding, “Everyone seeks to do that home renovation they’ve been putting off.”

There are several factors converging to create a busy, often challenging, market for industry participants.

SMB contractors are racing to procure the raw materials they need, like lumber and steel, to meet this demand, leading to rising costs for these products. Meanwhile, these businesses may be facing payment delays themselves, creating bottlenecks in their ability to make these purchases, pay staff and complete a project on time.

Suppliers, meanwhile, remain bogged down by manual back-office workflows like accounts receivable (AR) that can also stand in the way of efficient access to capital to fulfill demand.

Overall, heightened demand does not equate to stronger cash flow, and it can often create headaches for multiple parties as cash flows throughout the supply chain.

Easing Friction With Payments Tech

Banks’ hesitancy to finance SMBs in this market can be a business killer. Citing Census Bureau data, Ancona noted two-thirds of construction firms fail within five years, “which is worse than retail, agriculture and even wholesale.”

“And why is that happening? Mostly because they’re running out of cash,” he said.

Sources of alternative finance can be useful, but increasingly, businesses of all sizes in the construction and manufacturing arenas are finding an opportunity in B2B payments optimization and technology to support their working capital goals.

For financial service and technology providers like American Express, the task then becomes filling the unique needs of each industry participant.

Buyers need omnichannel payment solutions as they procure materials across a variety of platforms, from eCommerce portals to physical showrooms. In general, said Ancona, these companies need the “largest bang for their buck,” whether that means having access to a card product with expanded rewards opportunities, more affordable access to funding or an accounts payable (AP) tool that accelerates access to cash through automation.

Smaller firms seek payment flexibility, unsecured but higher lines of credit, and capital float to fill their biggest funding gaps when a bank loan is no longer an option. The larger players want tools that support payment diversification so they can optimize the routes through which money travels in and out of their firms. And suppliers, noted Ancona, need ways to meet customer payment preferences as well as tools to automate and streamline back-office systems like AR workflows and payment terms.

What every player in the industry can agree upon, however, is that they do not have the time to stop and consider which payment solutions they should be using on a daily basis. They may not even have time to seek a bank loan, Ancona said.

There is no doubt that businesses — especially SMBs — in the construction field have an opportunity to boost revenues and flourish during this period of growth. But without the correct payment solutions in place, business can turn from booming to overwhelming, muddying the picture of cash flow and thwarting those expansion efforts.

With this growth expected to continue into the year, firms must carefully consider their options, both in terms of payment solutions and the partners that provide them.

“Quite simply, the industry is experiencing record growth, record supply and record demand,” said Ancona, who added, “We’re hearing more than ever that buyers and suppliers increasingly are depending on their partners in the payment space to really extend working capital and improve the speed of pay to ensure all of these supplies are available, and to ensure that the payment needs can be met.”