Modernising Accounts Payable for Construction: An Industry Guide

In today's economic landscape, the construction sector is facing unprecedented inflationary pressures. With material and service costs soaring to unparalleled heights post-pandemic, with no end in sight, it is a test of endurance for construction firms to shield their cash flow, maintain project budgets, and protect their bottom lines. Amid these uncertainties, the automation of AP workflows emerges as a promising solution to streamline financial processes, cut costs and time, and enhance back-office operations. 

Fighting escalated costs with automation  

As construction companies grapple with soaring prices for building materials and labour shortages, back-office processes emerge as a hidden but significant drain on resources which can have a direct impact on the bottom line.  

Automating back-office processes is like installing a state-of-the-art irrigation system in a field; it optimises resource usage and maximises yield, in this case, financial savings and operational efficiency.  

• The Issue: Traditional paper-based invoice processing is not just cumbersome but also expensive. According to a Goldman Sachs report, a mid-size enterprise incurs approximately £13 manually processing a single invoice. Multiply this by the volume of invoices in a construction company across different suppliers, subcontractors, and projects, and the costs become staggering. Manual processing is also prone to human error, invoices often slipping through the cracks, which can result in further costs in the form of late payment penalties and disputes.  
• The Solution: To improve efficiency in your AP, implementing automated workflows is key. These workflows centralise and streamline approval processes, making them transparent and efficient. Additionally, leveraging artificial intelligence in invoice processing enhances the system's intelligence. AI aids in understanding and categorising invoice data, facilitating accurate and speedy processing. This approach not only reduces manual effort but also minimises errors, leading to a more efficient, cost-effective, and reliable accounts payable process, crucial for modern financial management in any business. 

Strengthening Contractor and Supplier Relationships  

The construction industry has long struggled with payment delays and drawn-out accounts payable processes. While the intricate nature of construction finance, marked by complex billing structures, approval workflows and various stakeholders, is a contributing factor, consistent late payments can stifle business growth and damage contractor and supplier relations.  

In an industry where relationships are gold, timely and accurate payments forge trust and breed loyalty.  

• The Issue: Consistent late payments can damage contractor and supplier relations, limiting a firm’s ability to negotiate favourable terms and better prices. Automation ensures that invoices can be processed and paid quickly, bolstering supplier partnerships and assuring subcontractor commitment.   
• The Solution: Implement a specialised AP software with supplier management and AI-enabled touchless invoice management to expedite invoice payments through smart automation of previously manual tasks such as matching invoices to POs.  

Streamlined Approval Workflows  

Automation can redefine the approval process, making the settling of invoices significantly faster and cheaper by creating clear, efficient, and user-friendly approval workflows. By establishing predefined and automated approval workflows, invoices can seamlessly navigate the necessary channels. Automated reminders can prevent bottlenecks, ensuring each stakeholder plays their approval role in a timely manner.   

• The Issue: Automated approval workflows expedite payments and prevent bottlenecks, enhancing efficiency and allowing payments to be made as quickly as possible.   
• The Solution: Kloo's AP solution allows you to set up an unlimited number of simple or conditional approval workflows, to which a purchase request or invoice is automatically assigned. Approvers receive automated alerts straight to their inbox with all the necessary information to either accept or reject the spend, without even having to log in to the platform. 

Transparency and Fraud Prevention   

• The Issue: Clear financial oversight is essential in the construction sector. Traditional, manual methods of AP processing is often clouded by paperwork, accidental overpayment, or even deliberate fraud.  With complex projects, a real-time, end-to-end audit trail becomes vital. Automated AP solutions provide this, creating a transparent audit trail for each transaction.   

• The Solution: Implement an automated AP solution to create a transparent audit trail for each transaction, which is especially essential for ensuring financial control and fraud prevention in the accounts payable process. Audit trails then provide financial leaders with up-to-date insights into expenditure.   

Takeaways: The Power of Automation in an Uncertain Landscape   

In the tempestuous climate of today's construction industry, companies find themselves battling multifaceted financial challenges. Surging material costs, labour shortages, and the drain of traditional back-office operations all exacerbate the pressure on already strained budgets and resources. Compounded with enduring issues of late payments and the ever-present demand for transparent financial operations, the need for a robust solution has never been clearer.  

Automated accounts payable workflows, especially those which harness the power of AI, can provide substantial cost savings and efficiency, and ensure timely, consistent payments, a cornerstone in building and maintaining vital contractor and supplier relationships. A central, automated system also provides unprecedented transparency, with an end-to-end audit trail that is pivotal for accurate financial oversight, effective fraud prevention, and agile decision-making in an ever-evolving industry.  

For construction firms navigating these challenging economic waters, embracing automation and artificial intelligence in their finances isn't just about staying afloat—it's about charting a course for future success, ensuring resilience and agility in the face of unpredictability. 

 Learn more about how Kloo delivers unprecedented efficient for your AP function.