Tired of paying your bills?

Jason Krankota, NVoicepay

Technology is revolutionizing construction processes on the job site, but it’s also making an impact in the back office, where the effects can be a game changer on a very fundamental level: payment processing.

Traditionally, construction companies have been slow adopters of technology, and this applies to how bills are paid, which is often still done with checks hand-signed by the company finance administrator. In fact, according to Nvoicepay, a provider of payment automation software, 51% of contractors still use this “old school” method because they believe it to be more secure than electronic payment processes. But is it?

Today’s cloud-based enterprise resource planning (ERP) software systems are steadily eliminating objections to an automated payment process which can save contractors hours of bookkeeping time and effort and increase efficiency and flexibility of payments, all while protecting all parties from fraud.

Contractors have already made big strides in digitizing the payment process by using PDF copies of invoices which can be downloaded into an invoice review and approval software that’s built into their ERP system or is an add-on solution. Still, in a lot of cases, when they’re ready to actually pay their bills, they still write checks, stuff them into envelopes, pay postage and so on. Through new software solutions, it’s possible to make payment disbursement completely paperless and safe.

“You could do it yourself simply by notifying your suppliers that you’re going to start paying them electronically through an automated clearing house (ACH). You’d need to ask them for a copy of a voided check or a letter from their bank showing what account to electronically deposit funds to. But then you’d need to store and manage that information,” explains Jason Krankota, vice president of Viewpoint Partnership Sales in the West Region at Nvoicepay, a FLEETCOR company. “And that’s not something a lot of construction firms want to be responsible for.”

Beware of fraud

Check fraud is the fastest-growing type of business-to-business fraud, Krankota points out. As long as checks are being mailed, it’s possible for bad actors to steal the physical note, have it altered, and cash it. But with more people paying electronically, new risks have arisen.

“In the construction industry, fraudsters can drive around any metropolitan area and find construction sites displaying

banners with the names of subcontractors and suppliers. It’s easy to tell who the general contractor is working with.”

Krankota says a common scheme involves gleaning email addresses for the GC and subcontractors from those banners, and then sending phishing emails to them with the goal of getting someone to click on a PDF. The message might say something like, “Hey, can you check on this invoice, it looks like you guys are paying too much,” anything to get someone to click on the file before they realize it’s from a fraudulent email address. Once clicked on, this file can install a virus onto their email server which will allow that processor to watch the email traffic going on between the general contractor and the subcontractors or the suppliers.

They might figure out, for example, that the HR manager at one subcontractor is talking with the AP manager at the general contractor, and they can see what the email graphically looks like, so they incorporate a logo to create a legitimate-looking signature line.

“Say these two individuals have a friendly banter going back and forth about their local baseball team. The fraudsters understand the tone of the communication, so they can craft a very convincing email that says something like, ‘Hey, Joe, this is Barry from ABC subcontractors. I know you guys had that payment coming to us next week for $800,000. Unbeknownst to me, our owner switched bank accounts. Here’s a letter from the new bank with our banking information. Can you make sure the payment goes here? And oh, by the way, how about that ninth-inning double play in the game last night?’

“This can look very legitimate, so the victim goes ahead and changes the bank information to where the fraudsters want the payment sent. Lo and behold, it gets sent to a fraudulent account,” says Krankota.

Risky business

Some general contractors believe digitalizing the payment process introduces too much risk, so they continue to use checks, but there are risks with that as well. Fortunately, software providers offer solutions where contractors can create a payment file that’s sent to suppliers in place of a check or an ACH transfer.

“They send that payment through us, and we make all the disbursements after determining how suppliers want to get paid,” Krankota explains. “If they want to get paid electronically, we gather that banking information and verify it for authenticity before we store it. And we assume all the fraud risk.”

The percentage of fraud occurrence is small, under 5%, Krankota admits, but when it does occur, the damage can be significant. “With check fraud, it’s kind of a shot in the dark because they’re taking whatever’s on the check. But with ACH fraud, when it does happen, the dollar amounts can be catastrophic.”

Choose your level of control

The typical payment process at many construction firms is a time-consuming, multi-step procedure.

“Traditionally, someone cuts all the checks and then they march down the hall to the CFO with all the backup documentation and copies of invoices. The CFO looks at each invoice to make sure it matches the payment amount, and then they’ll sign the checks with an actual pen,” Krankota says.

“I’ve heard countless times from CFOs who say, ‘Every Friday I have to come into the office for at least a half a day, when I’d rather be out playing golf with our banker, just to sign 100 checks.’ We’re offering the ability to click on an email, log into our website, and approve invoices and payments from there.”

When utilizing a third-party payment system, some contractors prefer to have little to no interaction with the technology. The software provider makes the payments and even handles any follow up questions from suppliers and subcontractors.

On the other end of the spectrum are contractors who prefer to upload payment files themselves to the system through its website and configure their own workflows.

“In the past year, with many people working remotely, our customers have been so happy to no longer need to send people home with check printers, run the checks back to the office and notify the CFO, who then has to drive into the office to sign the actual checks before someone else comes in to mail them. All of that goes away.”

Partners in payment automation

Computer Guidance Corporation, a developer of cloud-based ERP solutions for the construction industry, has partnered with Nvoicepay to collaborate on increasing efficiency in construction workflows.

“We believe our efforts will benefit our customers with secure payment automation processing,” says Michael Bihlmeier, president at Computer Guidance Corporation, whose eCMS cloud-based ERP software aims to help commercial contractors of any size or type to manage aspects of their financials and operations.

The integrated solution, eCMS Connect for Nvoicepay, intends to deliver an end-to-end and fully automated supplier payment and expense management system.

“Over the last few years, the construction industry as a whole has been warming up to the idea of automating their back offices, but with very few options for doing so,” said Nvoicepay President Josh Cyphers. “With Computer Guidance as our partner, we look forward to offering an easy-to-implement solution for our mutual customers as they improve their overall workflows.”

Time is money

With a similar goal, Centsoft unveiled an accounts payable (AP) automation technology last June for construction firms, which it says have special needs in terms of processing vendor and supplier invoices. Its technology tackles some of the daily challenges that project managers and financial administrators encounter by reducing workload, generating less paper, and increasing organization and accuracy of invoice tracking.

Centsoft connects with different ERP technologies like SAP Business One, NetSuite, Dynamics 365 and QuickBooks and automatically brings in vendor accounts, the vendor register and currencies.

Additionally, the infrastructure is designed to automate the processing of the hard copy and emailed invoices. It then puts the invoice information into a dashboard, eliminating the lengthy and error-prone process of manually typing invoice information into the accounting system.

Michael Cinchy, general manager of the Americas for Palette Software, parent company of Centsoft, reported to PYMNTS that the value of cross-platform connection can be significant, especially in terms of time savings as manual data entry is eliminated.

“Once an invoice is approved or matched, an automated process injects those invoices into the accounting platform for downstream processes to take over — like vouchering, and aging prior to payment — and becomes, for the most part, hands off,” he was quoted. “This combination increases data accuracy and shortens payment cycles.”

A matter of trust

For many contractors, there is still a level of trust that needs to be established before they become willing to relinquish control over their payment process. There can be some hesitancy around the disintermediation of supplier relationships as well.

“Our system will not damage business relationships,” assures Krankota. “It will enhance them through increased efficiency and security.”