Financial startup enters the Rochester market

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It is a familiar problem for people in the construction industry: waiting to get paid. In an industry where small contractors predominate and working capital is hard to come by, the payment chain can easily bog down.

Enter BuildPay LLC, a financial technology startup created by a former contractor who has worked for insurance companies. Although Steven Wightman’s company is based in Troy, Rensselaer County, near Albany, he recently reached out to the Rochester market and is getting an encouraging response.

Donald Tomeny, president of B&L Wholesale Supply Inc., said he will be one of the early participants in the system locally. Right now he has to wait for payment to flow from whoever authorized a building or renovation project to the general contractor. From there, it typically goes to the subcontractors and finally to suppliers such as B&L.

“By the time you get to the end of the chain, it could be 90 days, 120 days,” he said.

And even then, it does not always go smoothly.

“Every supplier has had to chase a sub for bills,” he said.

What BuildPay offers Tomeny is an opportunity to get paid earlier and without hassle.

“If it works as advertised, it may end up being the new way of doing business,” he said.

That is what Wightman is counting on. He convinced a group of angel investors to contribute $3 million to help him develop BuildPay. Wightman hired software development experts to design the system, which has to work with the transaction processors used by banks.

It operates like this: a developer or insurance company with a project puts the funding into an escrow account at a bank, with a set of rules and understandings about who gets paid when. Participants, namely the contractors, subcontractors and suppliers, provide their account information so money can be paid to them directly once the agreed-upon work is done. If there are change orders, the agreement is revised, and money is added to the account to cover the cost.

The account includes funds for both labor and materials, and a chip-based card linked to that account is given to the contractors to cover the materials purchased, so the supplier can be paid directly. Unlike a credit card, the supplier does not have to absorb a transaction fee.

All B&L has to do is agree to use a special BuildPay card reader that reads the secure chip cards connected to any given BuildPay project. BuildPay also can negotiate for best pricing for materials the same way that contractors do, something Wightman said is easier when prompt payment is part of the deal.

“We’ve literally had no suppliers say no,” he said.

BuildPay has projects using its payment system for construction projects around the country, including in New York, Florida and Louisiana.

“Conceptually, it sounds pretty innovative,” Tomeny said.

He decided it was worth trying with a construction project in Jamestown, Chautauqua County, that is using BuildPay’s system.

BuildPay collects its money at the transaction end, claiming a percentage, 1 to 5 percent, as payments are made to contractors and suppliers, with the percentage varying depending on the scale of project.

Having launched BuildPay in July 2015, Wightman expects the company to start turning a profit in three or four months.

“We need about $5 million in construction to flow through us per month,” he said.

He started with five employees and now has 17 people working for him.

BuildPay’s story actually goes back almost two decades.

Wightman had been thinking about a new payment system for construction work for many years, having been a commercial contractor in the Albany area and seen the payment problems first hand.

After going to work for an insurance company and seeing the same problem, he floated the idea of an automated payment system, writing in a trade journal, and got a positive response. He sought out investors to start his company, but that effort fell victim to bad timing and the dot-com bust.

But Wightman hung onto the idea and continued to talk with people in the insurance industry. Guy Carpenter, a part of Marsh & McLennan Cos. Inc., was interested in the idea and hired Wightman as a consultant.

“That got us here,” Wightman said.

More recently, his connections with the insurance industry allowed him to pilot his program on 21 projects, testing and proving the system would work.

These days, Wightman and his field operations executive, Gary French, who is based in Sarasota, Fla., are traveling and reaching out to insurance companies, builders and suppliers, including those in Rochester.

Recently, they made a pitch to city of Rochester finance director Charles Benincasa, who also serves on the Joint Schools Construction Board, to see if the city might be interested in using the BuildPay system for phase two of the school modernization project. No bites yet, but Wightman said the momentum is on his side this time.

“There’s a lot of activity and open minds,” Wightman said of the Rochester construction scene.

10/14/2016 (c) 2016 Rochester Business Journal.