Under traditional construction financial process, there usually is a lengthy delay between when subcontractors submit invoices and when they are paid. That presents a key challenge for such companies, who still must fund their operating expenses throughout these payment waiting periods.
Cindy Pitts, co-owner of Reno, Nev.-based F & P Construction, is well acquainted with that challenge. While the successful excavation contractor waits weeks or months for its invoices to be paid, “our equipment costs don’t stop. Our fuel costs don’t stop. Our labor costs don’t stop.”
Enter Early Payment Program™ (EPP™), an innovative solution to the working capital challenges that plague the construction industry. Developed by Textura® with its financial services partner Greensill Capital, EPP facilitates third-party funding that enables general contractors to offer optional accelerated payments. With EPP, a supply chain finance program for the construction industry, there’s no delay as the general contractor waits for the owner to provide funding for payments. Subcontractors can be paid for their invoices just a few days after they are approved.
“Not holding up cash flow is huge in this business,” Pitts says. “When Textura-EPP first came up, I was right on board with it,” adds Pitts, who notes that she has been able to receive payment 45 to 60 days sooner when participating in EPP, compared with projects where it is not offered.
Increasingly difficult financing conditions for small and medium-sized enterprises (SMEs) were a driver behind EPP, which is designed to improve working capital access and cash flow for subcontractors. In the years following the global financial crisis, credit standards have tightened. In addition, recent regulatory changes that increase capital and compliance standards for banks mean that SMEs are competing at a disadvantage when it comes to bank financing.
“Before the economy went down, we had credit lines, everybody had credit lines,” Pitts says. “Everybody got skinnier and skinnier, and right now credit lines for construction are a rare animal in Reno.” F & P, which has been in business since 1991, provides complete commercial and industrial site packages for projects across northern Nevada.
By leveraging the strength of a general contractor’s balance sheet, EPP can help by improving subcontractors’ access to working capital at potentially better financing rates than they could obtain on their own. Unlike approaching a bank for financing, with EPP, “it’s for the construction world, and everyone (involved) understands construction,” Pitts says.
“I just think it’s a win-win for everybody,” she says, noting that she would be thrilled if more of her general contractor partners offered an accelerated payment option using EPP, which is administered via Textura-Construction Payment Management™.
“I would like to see all of my projects on Textura, to tell you the truth. And if I had early pay on 50 percent of them…I could go take a vacation!” Pitts adds that she would potentially provide a preferential bid to a general contractor offering EPP.
For subcontractors, early payment is always optional, and they can opt into and out of the program on an invoice-by-invoice basis. In addition, participation in EPP doesn’t entail the burdensome paperwork and financial statement reviews of traditional credit or bank lending. Enrollment is straightforward, and there are no changes to the pay application process, which takes place in CPM as usual.
“The simplicity of it - that’s one of the biggest assets. You just sign in and you’re in. You don’t have any worries about it,” Pitts says.
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