Mom and Pop shops and businesses in the USA make up 99.7% of all businesses.  According to the US Census, 13% of all those Mom & Pops deliver construction services.  Seventy percent of all construction work placed is by subcontractors and most of them have 4 employees or less. Approximately 95% of all US material providers are Mom & Pops with less than 3 locations.  Though they appear small, Mom and Pops are a huge factor in our nation’s economy!

Despite their strength in numbers, these Mom and Pop material providers and small construction companies face daily challenges that larger companies do not.

  • The construction industry has the longest accounts receivable in the world (75 days). It’s the Mom & Pops (M & P) that carry this burden.
  • M & P material providers see themselves as “the bank” for projects; they extend trade credit to contractors and subcontractors to execute work.
  • Construction M & Ps also can count themselves among the world’s businesses with the least access to working capital. Experts report that this trend will only get worse – given regulations and the high rate of failure among construction companies.
  • Materialmen and contractors almost universally report that “everybody’s holding the money longer.”

For Mom & Pops, payment is a necessary evil. We hear them say it all the time, “I just want to get paid.” Getting paid is seemingly so simple, yet a huge part of their daily routine is chasing payment. The construction payment relay repeats itself millions of times every day with each actor holding the payment baton as long as possible. Checks continue to be “in the mail,” or some other excuse. It’s just the way things are.

And yet, payment hardly ever gets attention as an industry-wide problem, despite it being the one and only process that all construction projects have in common. Paper checks were invented in Medieval Italy. How is it even imaginable in this hyper-connected world, with so many forms of financial technology and things like crypto-currency to enable faster and easier payment, that Mom & Pops are still writing checks? And sending them via US snail mail…to be settled days later between slow-moving banks?

It makes no sense. Convoluted payment processes need to be replaced with more efficient and modern technology. And so BuildPay set out to do just that: improve construction payment – only payment – the way it is intended; without friction, without charges, without risk and with transparency. BuildPay uses its own patent-pending financial technology to direct project payments exactly where they need to go; allowing Mom and Pop shops to make ‘getting paid’ the first and easiest thing they do.

 

 

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Lenders: Competitive Advantage


The golden rule sums up lenders’ advantage the best. “Whoever has the gold, makes the rules.”  While the bank has the gold, they compete with other banks, who also have the gold.  Their rules are necessary, they do not need to be changed.  There are many companies that argue the execution of the rules are inefficient, but efficiency really does not substantially improve protections for banks or add construction success for customers.  A shared ledger allows banks - as the trusted source of project funding - to set the rules for project payment releases, monitor the project health and all but eliminate any chance of lien.  Cash-flow-lubricated projects attract competition to accelerate work at more competitive prices with superior protections for virtually every player in the chain.

Insurance: Competitive Advantage


Insurers’ obligation to pay is the most potentially powerful tool insurers have, but is very difficult to systematize and scale given the daunting challenges of insurers collaborating with a huge, highly fragmented and complex construction industry.   Since all construction has chronic payment risk and inadequate cash flow, it makes sense for property insurers to use their irrevocable obligation to pay to attract the construction industry.  Since cash flow is most attractive at the project level, inter-industrywide collaboration between insurers and the titans of construction is less important than mechanizing a platform that can be scaled from one project to many thousands of projects.

Government: Competitive Advantage


In some cases, opportunity for small subcontractors (with limited financial wherewithal) is only one part of the total equation.  Some very talented and well run companies still cannot automatically get the trade credit, working capital and cash flow they need to keep pace.  The struggle is unnecessary when the government funding source can allocate contractor-planned and approved payouts directly to these subs.  Similarly, the subs themselves can allocate material budgets to the ledger to enable them to procure all the materials they need without the material provider taking on risk.  Working capital constraints are greatly alleviated, cash flow accelerates and there is no need for trade credit.  Government agencies can see activity on the ledger for each bid project.  Bids improve.  

Why would construction lenders need to change their highly refined processes?


Success for construction lenders means providing their customer with the funds needed to build the project they want.  To protect the bank’s interests, protective draw schedules are put in place to assure the project is done – and done without liens.  Albeit necessary protection, slow draws cost project time and money.  Some oversight, work and material providers avoid working on bank-funded projects, charge more or require large owner-deposits. This is especially true for classes of product that are fabricated offsite and installed after fabrication is complete, when providers are still not paid until after the next draw.  Customers pay interest on capital needed for construction, with process requirements attached that add to the construction cost and delay project delivery.  In a world where settled business models (think taxis) can be unsettled in months (think Uber), this one probably has disrupters’ attention.

Why do property insurers need to change?


Success for property insurers is making their customer whole as quickly as possible and protecting their loss ratio from significantly inflated reconstruction payouts; especially overblown demand-surge prices following disasters.  Insurance reconstruction is the most inflated of any type of institutionally funded work and is getting worse.  Claim departments are startled by the rate of new disadvantages to mitigate, using tools that have not been substantially redesigned in decades.

Why would government funded projects need payment changes?


Many government entities endeavor to help smaller subcontractors and material providers have the opportunity to be awarded contracts.  In some states women and minority owned enterprises are guaranteed a portion of publically funded construction.  Most contractors we talk to are supportive of this mandate, but it comes with unique challenges.  Providing opportunity alone does little to help solve problems with deficient working capital, trade credit at material providers and enough rapid cash-flow to keep up with fast-paced project schedules.  In some cases contractors help these subs as much as possible, but obviously there are some challenges beyond their control.  These problems work their way to the top like air bubbles in concrete.