There are a lot of factors that make B2B payments in the construction industry a challenge. One is a culture of delayed payments, and another is the mobile nature of the market, with professionals working on-site and always on the go.
But the biggest disruptor to a smooth B2B transaction, says Zlien CEO Scott Wolfe, is fragmentation.
“There is fragmentation in a number of categories,” he recently told PYMNTS. “One area of fragmentation is the types of companies involved. You have mom-and-pops, multinationals, lenders, banks, insurance companies – all of which touch the payment process.”
There is also fragmentation in regulation, he said: Each of these players must adhere to different rules that often change depending on location. Plus, he said, they each use different tools to get the job done.
“All of those fragmented environments clash together at the moment of payment,” said Wolfe.
“Something unique about payment in construction is that it’s different than just getting money from point A to point B,” he continued. “It’s not like you have accounts payable, accounts receivable and it’s game over. There are many more layers to that, and there are a lot of expensive risks with construction.”
Those risks include delayed projects, delayed payments, even injuries on the job. A crowded construction project that leads to exposure of many different types of risk has led to the industry’s development of protection, rather than one of collaboration, the executive explained.
A Long History To Change
In order to change B2B payments in construction, the industry’s culture has to change, said Wolfe. That’s undoubtedly no easy task, especially when payment practices and procedures in this space date back hundreds of years.
Take the lien, for instance, used to protect against non-payment, which can ultimately place responsibility on property owners, even when they’ve paid their general contractors.
“The manifestation of the lien is the perfect example of what happens when things go wrong,” Wolfe said. The lien is a result of this culture of protectionism, not collaboration, and is just one example of how paper-prone the industry is.
But the tool also represents just how much the construction industry has evolved over the years, he noted. Construction used to be an industry in which agreements were made on handshakes.
“People did business with people they knew,” said Wolfe. “Communities were smaller, the building community was smaller, and regulations were a lot simpler, and you did business on a handshake.
“But now, with consolidation of suppliers and distributors, with multinational companies supplying construction materials, general contractors are getting bigger, and they have to manage relationships across thousands of projects,” he continued. “You have an environment now in which companies have to operationalize how they work with other companies – they can’t do it on a handshake anymore.”
That’s led players to implement their own procedures, like the lien, and in recent decades the culture of protectionism has evolved.
Payments Married To Data
The payments that flow across multiple parties on a single project aren’t the only process marred by fragmentation. Considering the document-rich nature of the industry, according to Wolfe, these trends highlight the importance of the ability to send information and data across parties, not just money.
One process in need of repair is the sending of paperwork throughout the various layers of project participants; another is to facilitate communication between all of those players.
But fundamentally, the seemingly simplistic need to understand who all of the players are is one rarely achieved in today’s construction environment, and something Wolfe said is “one of the most complicated parts of payments in construction.”
“You might drive by a construction project, and there are 50 people working, and 30 suppliers, and no one knows who the other person is,” he said. “They’re all living in their siloes, and they’re all at risk to one another, and they all need to exchange documents. We’re not talking about sophisticated data exchanges here.”
As is the case when it comes to addressing payments friction, technology has the potential to smooth things out. Zlien isn’t the only firm addressing construction B2B payments, either, and Wolfe said the industry has a wide area of potential for tools like Software-as-a-Service, data analytics, APIs and artificial intelligence. Even blockchain, he said, could potentially address issues of connectivity, efficiency and the marriage of data and payments in the future.
But just as Zlien and other industry players attempt to tackle a culture that complicates payments, these companies are also challenged to tackle a culture that resists technology.
According to in a 2016 report from KPMG, the construction industry is among the slowest to embrace new technological tools. Two-thirds of more than 200 construction and engineering executives surveyed said they aren’t using advanced data analytics, for instance, and fewer than 20 percent told researchers they’re rethinking business models to incorporate new tech.
But if FinTech can help construction firms embrace technology, they can begin to address some of the most complicated issues at play.
“At the heart of it all,” said Wolfe, “is no one can ever get on the same page. Every time money is released, it goes into a hyper-fragmented environment. That’s the biggest challenge.”