ProWallet Is Building A Better Payments System For The Construction Industry

Construction cash flow is broken, and the problem is severe. The industry is plagued with antiquated, disjointed processes that make it hard for parties to track and collect payments promptly. As the industry has grown, so has the risk associated with these process problems, bottlenecks, and decentralized payment structures.

Several factors can disrupt the flow of money in the industry. These include the need for significant upfront investments, unexpected costs, delayed payments from clients, changes in project scope and timeline, and more. Even the way money changes hands is antiquated in construction, with paper checks and cash still prominent forms of payment. These options present their own challenges. Checks can take 30–90 days to be issued and then be held by the bank for up to two weeks before funds are available. Cash is quick but untraceable, which can lead to tax consequences and lien issues.

Complexity creates headaches, but digital workflows are starting to help

Payments in construction are even more challenging because of the complexity of the industry. Construction projects involve multiple parties, including contractors, subcontractors, workers, suppliers, owners, and lenders, all of whom have different interests, responsibilities, and contractual obligations. Finally, payment delays can have ripple effects on projects, causing operational delays and cost overruns. Escrow accounts, loan documents, liens, title registration, and the need for notarization can all slow the movement of money even further.

Business-to-business (B2B) payments are an integral part of the global economy, with more than $120 trillion in payments exchanged between businesses each year. Given the complexity of these payment processes and networks, it should come as no surprise that the B2B payments ecosystem is undergoing a digital transformation. Digital workflows are replacing paper-based processes and payment methods so that money and data move faster and more accurately between trading partners.

The cost of slow payments

Rabbet, a construction finance software company, recently released its 2022 Constructions Payments Report, which pointed out that slow payments in construction cost the industry $208 Billion in the US alone. In an industry where working capital is imperative, 62% of general contractors have had to pay billing fees, finance charges, or other expenses when deferring or floating payments to others in the last 12 months, according to Rabbet.

Slow payments add cost, time, and construction risk. Here are some of the crucial takeaways from Rabbet’s report:

  • 37% of respondents stated that work had been postponed or ceased on a job in the past 12 months because of late payments to crew members.
  • General contractors spend 44 hours per month managing payments to subcontractors and vendors.
  • 90% of general contractors see the value in paying subcontractors faster.
  • In 2022, there was an 8.5x increase in general contractors using retirement savings to float payments for their business (a jump from 2% in 2021 to 19% in 2022).

Most contractors facing a payment shortfall make up the difference using personal savings, or else they borrow money at high interest rates from short-term lenders. A cash crunch can also lead to borrowing money from another project, which puts both projects at risk. Construction progress often stops when contractors must chase money, file a lien, or move money between projects to manage cash flow.

While companies have come a long way in speed and efficiency for B2B payments, payments are often restricted to minimum and maximum payouts and can take 2–5 business days to transfer. As with many technology solutions, the last mile is often the hardest. In the case of construction payments, that last mile means getting money into the correct accounts promptly to avoid costly delays.

Automation via software is already starting to improve the payment infrastructure in the construction industry. For instance, Rabbet says that it has improved visibility and efficiency for more than $40 billion in construction projects. The company’s platform helps businesses track who is owed what and when payments are due, which can help speed up the payment process.

Rabbet’s budget management portal. RABBET

ProWallet improves construction payment options

Now ProWallet, the construction industry’s first instant payment solution, will accelerate money mobility with a mobile app that allows lenders, builders, contractors, subcontractors, workers, and suppliers to transfer funds between parties instantly. The digital wallet solution enables users to make and receive payments quickly and securely anytime, anywhere. Using the app is simple—enter the amount to be sent, select the recipient from your contact list, and hit “Send.” The money will appear in the recipient’s account immediately, with no waiting period. ProWallet uses automated clearing house (ACH) transactions, eliminating wait time and the potential for bounced checks. ProWallet is currently in limited beta and will be available in Q2 2023 on iOS and Android devices.

Founder and CEO Trac Stephenson started ProWallet to solve the most significant pain point he encountered throughout his 28-year building career. Even though he had a thriving business framing more than 5,000 houses for top national builders, he often found himself with insufficient liquidity to pay his workers. This situation forced him to engage with private lenders to meet weekly payroll demands. Because banks avoid unsecured lending, the only options available to him were merchant advances, factoring, and private money. These lenders require excessive returns on their capital advanced (e.g., borrow $100,000 and pay back $150,000 over four months). Inherently, these avoidable costs are passed on to builders and then end customers, ultimately costing home buyers.

According to Stephenson, speed and efficiency in getting paid are top decision factors for workers when deciding which jobs to accept and how to bid on them. “The construction profession is hard work, but what makes it brutal are the delays and inefficiencies in getting paid. Prompt payment can make or break you as a construction professional,” he said.

The mobile wallet platform allows users to transact small or large payments; share invoices, time- and geo-stamped images; and instantly execute lien waivers with remittances. ProWallet also offers an instant cash advance feature on receivables, allowing users to get paid up to 30 days early and manage their cash flow and finances with far less burden. Users can easily access their mobile wallet balance and transfer it to a bank account or utilize the ProWallet Mastercard debit card for purchases and ATM cash withdrawals.

ProWallet’s cash advance feature is exclusive to select builder partners. The company plans to roll out instant, on-demand receivables funding in Q2 2023. Capturing real-time data by integrating into the builder’s project management systems and eliminating the need for underwriting, ProWallet makes getting paid easy because vendors are automatically pre-approved in real time as builders approve completed tasks. There is no cost of implementation, but perhaps more importantly no need for behavior change to take advantage of these benefits.

ProWallet’s ACH transactions are encrypted and executed through secure banking channels with clear traceability that doesn’t exist with checks and cash payments. This ultimately means that contractors can better serve builders by increasing productivity, reducing the builder’s risk, and potentially reducing the cost of projects. By reducing risk, ProWallet can offer low fees to vendors and get repaid on the builder’s schedule.

Much-needed digital innovation for the construction industry

Thanks to the digitization of finances across the industry, construction executives and workers now have more visibility into their cash positions across their supply chain. Meanwhile, innovations in accounts payable and receivables are helping buyers and suppliers align on payment terms and trade credit. With this digital transformation, businesses can take advantage of the cost savings and other advantages of improved efficiency. Ultimately, these efficiencies will trickle down to home buyers and other building owners—a much-needed benefit for our economy.