Relieve Mounting Pressures by Modernizing the Back Office

As labor rates climb, updating the back office creates efficiencies to do more work in less time.
By Jim Campbell
September 6, 2022

Escalating labor rates are just one of the many challenges construction firms have been battling. Despite surges in demand brought on by a relatively robust housing market and major infrastructure build-outs tied to the Infrastructure Investment and Jobs Act, the industry is still dealing with pandemic recovery, record-high labor and supply-chain shortages and exorbitant, ever-fluctuating pricing on critical materials. These challenges make it tough to bid and win jobs and complete them on time and within budget, putting businesses at risk.

This pressure often means firms are making tough financial decisions to protect their cash flow and searching high and low for ways to keep costs in check, including back-office operation, which is often wrought with inefficiencies and ripe with the potential for costly errors because it remains to be handled manually. And while digitizing and modernizing the back office may seem counterintuitive during times of belt-tightening, it can save businesses significant time and money when they need it most. In fact, Goldman Sachs research estimates that automating the back office’s manual accounts payable (AP) processes can save companies 60% to 70% in labor and processing costs.

Let’s take a closer look at how updating the back office can transform construction businesses by creating efficiencies that enable them to do more work in less time without adding to overhead.

The construction industry is uniquely poised for gong paperless

Back-office staff, including those who handle billing and payments, are often stretched thin, overworked and saddled with time-intensive, manual processes. These daily tasks may include collecting and processing a high volume of invoices, chasing down approvals from project managers who are continuously moving between jobsites, and cutting and mailing paper checks. There’s pressure to pay quickly or lose contractors to competitors.

Outdated technology, including Excel sheets and accounting systems that are anything but integrated, adds time and frustration to their work, as do unique complexities like partial deliveries and back orders that are intensified in today’s volatile environment. The construction industry is also notoriously tied to paper—blueprints, drawings, receipts, orders, invoices, progress reports and punch lists—that can be a bear to manage and easily misplaced.

The time-intensive processes along with the waiting and uncertainty these inefficiencies create can tie up cash flow and stall payments, in turn souring relationships that firms can’t do business without.

Digitally transforming the back office

According to McKinsey research, since the pandemic, the mandate for change and technological adoption in construction has never been stronger. Construction firms need new and better ways to manage their burgeoning workloads amid the sea of macroeconomic challenges that are beyond their control. Technology can provide relief.

Cloud-based construction management software and collaborative sharing tools can help firms wrangle paper, for instance, managing drawings and specs and connecting them with RFIs, punch list, and photos to increase productivity and boost efficiencies. Mobile application extensions make it even easier by enabling them to manage, access and share information remotely.

Automation technology can take digital transformation in the back office a step further by reducing time-consuming manual tasks related to processing invoices and paying bills. AP and payment automation enable tremendous operational efficiencies that can reduce the time it takes to process an invoice from 10 days to just three days and reduce labor and supply costs.

Some automated purchase-to-pay solutions can even integrate seamlessly with firms’ existing accounting software, making it quick and easy to process invoices, match them against purchase orders and get them paid quickly and securely. They also offer subs the choice of epayments that are faster and more secure than paper checks.

By eliminating tedious tasks, automation enables staff to handle greater workloads without adding headcount and frees them to put their time to better use. Rather than keying in invoice data and stuffing envelopes, they can work on strengthening vendor relationships and leverage their firm’s financial data to help it get ahead.

Modernization provides newfound visibility

According to the Institute of Finance and Management, one of the most significant benefits of AP automation is the data it generates, providing real-time access to financial metrics and insights that are especially valuable to the construction industry, as success hinges on managing bids and commitments against budget and time. With automation, firms know when invoices come in, which balances are outstanding, when payments are due and who hasn’t yet approved invoices and payments. They can ensure that costs align with budgets and estimates, which leads to more accurate projections.

And, because historic data is collected and can be easily analyzed, leaders and finance professionals can better monitor cash flow and identify and rectify holdups such as vendors that are notoriously late with payments. The data also empowers them to identify opportunities to save, for instance by capturing an early payment discount or switching vendors.

Preparing for an optimistic yet uncertain future

There’s no telling how long the construction industry will continue to deal with shortages and higher costs of doing business. While firms can’t control these economic factors, they have the power to replace costly, inefficient processes with technology that saves them time and money, eliminates the need for additional headcount and strengthens valuable supplier relationships by ensuring prompt payments.

According to a recent survey from construction technology company InEight, the industry recognizes the need for digitization and sees it as a top opportunity for getting ahead. Of the North American respondents in the survey, nearly half (between 44% and 49%) believe it will provide them with greater strategic insights, automate work and offer more control. As firms recognize these benefits as a powerful way to future-proof their business and create a competitive advantage, finding a partner that offers not only technology and support but also industry-specific expertise can ensure a smooth transition. With no time to waste, construction firms can start to experience the benefits firsthand .

by Jim Campbell
Jim Campbell is the VP of Construction at AvidXchange, the industry leader in automating invoice and payment processes for mid-market businesses. Jim joined the company in 2016 after decades in the construction software industry and is now responsible for driving buyer growth in AvidXchange’s construction vertical. Jim began his professional career in 1979 with Timberline Software Corporation, a pioneer in the development of application software for the construction and real estate industries before it was purchased by Sage Software in 2003.

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