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Construction Financing Checkup: Trends & Wins

Chris Doyle, Founder and CEO of Billd


According to the 2019 Construction Payments report, slow payments cost the construction industry $64 billion in 2019. Other findings include: 30% of all respondents reported work had been delayed or stopped due to payment delay; floating payments for wages and invoices adds a combined average of more than 5% to total project costs; and, 63% of subcontractors chose not to bid on a project due to a GC’s or owner’s reputation for slow payments. 

It’s no secret that cash flow in the construction industry is a huge problem, and the further you are from the top, the longer it takes to get paid. Late payments are often seen as the rule instead of the exception, and it’s harmful for the industry. As Carl Oliverie, partner and construction practice leader at New York City accounting and consulting firm Grassi & Co., puts it, “Contractors don’t go out of business because they lack work or poor performance on projects. They go out of business because they have no cash.” 

Enter Chris Doyle, President and CEO of Billd, a payment and finance solution for the construction industry. Billd, like many emerging FinTech companies, promises to reduce payment uncertainty for contractors. Unlike other solutions, Billd has its roots firmly planted in the real-world experience of construction financing and was specifically built for subcontractors who want to keep cash flowing and their business growing. 


Construction Financing Checkup and Getting Contractors Paid Faster with Chris Doyle, President and CEO of Billd


Tell us about yourself, your background, and how you came to build Billd.

I started construction pretty early, when I was about 16, framing houses. It's a really great job because you're outside, you're carrying stuff. You get a really great workout. Generally, your shirt's off, so you get a really good tan. They pay once a week in cash, every Friday. For a high school kid, it’s a perfect summer job. When I graduated college, I jumped in with a regional home builder that went bankrupt after the 2008 crisis. Ran about eight different subdivisions in building, I would say, large tract but slightly custom homes.

From there I got into commercial construction where I worked as a subcontractor for about five years. That's where I got my best experience in construction, especially on the business side of things. After that, I got into some disaster recovery work, including Hurricane Andrew and Hurricane Sandy and working with solar and renewable energies.

That's where I started my first company, SiteCapture, which still operates today. It's got about 30% market share in the solar industry, doing field-site surveys. From there, I went on to a startup called Dividend Finance that did consumer finance sold through contractors. That's really where I saw how much, call it mainstream capital markets, misunderstood the contractor base and its very unique attributes. 

I started Billd with a core focus on solving a lot of the pain points of the subcontractor directly — specifically with slow pay and cash flow problems.


What makes Billd different from other construction finance offerings?

So many companies, whether it's a platform or finance company, are trying to solve this problem from the top-down, meaning the GC or project owner or even bank-level, whereas at Billd, we are the only ones solving it from the bottom up, directly with the sub and supplier. 

Folks always say, ‘Who finances a commercial construction project? It’s the subs,’ because they're the ones buying the material upfront, they're the ones putting labor on the product, and oftentimes aren't paid for 60 to 90 days after that initial payout.


Walk us through the challenges contractors face in getting paid. 

There's just so many things going on at the pay app level. A subcontractor submits a pay application once a month, generally on the 25th, standard AIA form — that's not necessarily the trouble. The general contractor then rolls all that up to a consolidated pay application for the product owner. That's really problem number one, where if you have 30 subs and if three of those subs need a kickback because they are asking for too much in-progress versus what they've actually made. You're going back and forth with them.

A lot of times that pay application gets delayed just based on the fact that you're working with so many subs at once. Keep in mind, to solve this problem, most GCs ask for the pay apps about 10 days early. So as a sub, you are projecting out through the end of the month on the 15th. That can be a challenge, especially if right after you press send, it starts raining for two weeks straight. More than likely you won't be able to make that progress that you are expecting. 

If the owner has a construction manager involved, they often are flowing it through that entity. This is where lien releases become a big delay. You find your major suppliers on the project, you have to get lien releases for the subs, potentially also the suppliers. At the same time, a bank is often asked to verify the progress payment based on how fast construction is going. They're deployed on site to verify. There's a lot of things happening there. Once you get the full release, it generally gets released fairly quickly, from bank to project owner to GC to sub.

But even if it's as quick as possible, that's four days right there, if you're doing direct ACH payment, which isn't necessarily the case, always. Sometimes if you have a government project, you get a fairly quick turnaround on those, just because not so many parties are involved. 


In your opinion, why are subs still facing this slow payment issue, when we know as industry how dysfunctional it is? 

The bigger issue, and I say this a lot, is Billd wouldn't be all that necessary or our product would look pretty different if contractors just had to wait 90 days and it was super predictable.

The 30 days or 90 days or 120 days, however long it takes for subs to get paid is not predictable. You can plan, you might say worst case, 60 days and it doesn't show up, that's a significant cash flow that a sub is counting on. Depending on your size, you're not diversified enough to take these kinds of hits and continue to operate without that incoming cash.


How has the pandemic affected payment terms and trends? 

I haven’t seen much of an effect in construction lending. Generally, the construction industry as a whole has done a very good job of accommodating quickly. A lot of that is their ability out in the field to implement the proper PPE and make sure that the workers are safe and projects are safe. Super kudos to the industry for that and the commitment because I think you've seen that across the board. 

There are a few instances where a project has been paused or is experiencing payment delays but for the most part, I haven’t heard of that happening much. If a project is paused in a rare case, contractors are generally able to double up on the next one, so that they can move even faster on their other projects.


What about the pandemic’s effect on supplier credit terms?

In some cases, an alternative for our customers is to simply use supplier terms, which are generally 60 days, which aren't right-sized. You go back to the original date range, it's 30-90 days from pay app, not from ordering the material. That still leaves a significant gap. 

Contractors pay different suppliers at any given time, so that credit limit is incredibly important for them. No one supplier can offer the full credit limit a sub needs, but if they're using three or four suppliers at a time, it works.

What we have seen change is suppliers saying, ‘Hey, look, I built a two-decade-old business here. I don't want these global events to sink the ship.’ Then the supplier tightens up credit limits and terms. Suppliers know what they are doing and how they evaluate their specific customers. At the same time, they don't have the depth and breadth of data Billd and some other lenders have to make credit decisions and some other lenders. 

A service like Billd has more confidence in our mutual customer to repay at 120 days sometimes than a supplier would, especially when they're getting a little bit more conservative because of broader global events. That could also be trickling down from the manufacturers or distributors that they're buying from — they could be implementing some tighter tighter guidelines and cash flow as well. There's a lot of variables to consider at once, but other than a sentiment issue, I don’t think there’s been any huge direct impacts from COVID. 


Walk us through how a contractor would use Billd.

A typical use case for Billd is fairly simple: A contractor has a project coming up. Let's say, it's a $200,000 electrical contractor on a parking garage. Fairly simple, for an electrician, but it's going to be probably $80,000 for the total material, maybe $40,000 or $50,000 for lighting alone. 

It's easier for our electrical contractor to purchase it all upfront because they can get a discount. They could stage that out to match their incoming cash flow and actual work product as they install it, but they're able to get that big discount oftentimes by purchasing it all at once.

For that kind of purchase, our electrical contractor is probably getting an individual quote to make sure they get the sharpest price. They simply drag and drop that quote onto the Billd platform, let us know when they want us to pay the supplier. We really take care of everything. We work with pretty much every commercial construction supplier in the U.S. We reach out to them, confirm the amounts and send a same-day payment.


How does Billd help contractors who have had trouble getting credit in the past?

For this hypothetical electrical contractor who represents our real customers, these kinds of material requests are really important. If they're delayed on a project one or two days, more than likely, that causes five or six other subs to be delayed even further. Timing is everything and we take that extremely seriously. We review every single day what has been submitted and we make sure either it's funded or the customer knows why we're not able to fund it, and give them a to-do list to fix the issue.

For the most part, we really are evaluating payments based on the project level. A new Amazon warehouse where it's 99.9999% guaranteed that payments go to the GC to the sub, is different than an owner-occupied duplex going out in the middle of COVID. There are instances where we might be a little bit tighter, but for the most part, if any commercial construction is going up, we know all about it. If a contractor account has had some issues in the past getting credit, more than likely they're going to have success with us. 


How are new construction financing providers like Billd helping the industry as a whole? 

We get reviews all the time via email or a phone call that thank us for helping their business grow. Or, ‘We really locked in with a supplier we didn't necessarily want to use and now we're able to use a supplier that gives us great product support and great logistics and great pricing.’ Maybe the supplier terms weren’t that great but now the contractor can still use them. Being able to support contractors grow their business and work with who they want to is absolutely the most rewarding thing for me to see.


What is your advice or action plan items for construction entrepreneurs who consistently face cash flow issues?

Well, with regard to cash flow, make sure you have all of your options enabled. It may be Billd, it may be getting a corporate American Express, it may be introducing the concept of a line of credit with your bank. That doesn't mean that you will be securing a line of credit right away. If you've only been in business, say three to four years, and you're around $3 million in annual revenue, that's not going to be a slam dunk. Maybe you don't have a ton of assets or the assets you have are all leveraged, which is extremely common.

Keep your options open, including Billd. There's absolutely no reason if you're in the commercial construction space and not be enabled through Billd. There's no cost to it, there's no hard credit inquiry, there's no jumping through hoops. You may use it, you may not, but being set up and knowing its available option is going to help you out a tremendous amount. 

Banks likely have the lowest cost of financing of anyone, so contractors with cash flow issues should be pursuing that option. In many ways, Billd’s objective is to get a customer to the point where they can utilize bank financing. A contractor uses us for a few products, and we're reporting to the bureaus. Banks can see that really positive credit history whereas suppliers don't report to the bureaus like we do.

Another thing to remember is your relationship with a supplier is super important and they can really help you out of a jam. You don't always want to be hammering out the lowest price possible from a supplier. Yes, there’s a time where collectively both parties need to do that in order to get a good competitive project. But the relationship component between supplier and contractor really needs to be a focus.


Are there other challenges that you’d like to help contractors take on in the future? 

Of course! Billd is launching a pay app advance product fairly soon. In addition to just the material, contractors can submit their approved pay applications and we will advance them a portion. Again, it's an option for flexibility. If the contractor knows the pay app is coming in and they need the cash sooner, we can supply that. We take a unique spin on it because we won't necessarily notify the general contractor, so it doesn't cause any relationship issues between the sub and the GC.

I’m also looking to implement a payment portal between the supplier and the contractor to make it a lot easier. You'd be surprised at how clunky the process between supplier and sub is right now. We have a platform that we'll be releasing probably in Q2 that streamlines that process, not just for Billd but also through credit card, ACH, any other way to make it super simple for a contractor to send payment to a supplier. Click, click, and then it's paid.


What’s your favorite resource for contractors who want to get a better handle on financing?

It's in Billd’s best interest for our contractors to be well oiled machines with regard to how they finance their business so our blog has a ton of content — whether it's why and how to get a sole prop or incorporated, or what are the different kinds of financing, the pros and cons of each. There are tips for how to better negotiate with a supplier, which is interesting because it really isn’t a negotiation, it’s a focus on relationships, and not treating everything as a low bid.


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About the Author

Rachel is the Content Marketing Manager for Trimble Construction. She's written for finance, SaaS, manufacturing, telecom, and healthcare companies for 16 years. Writing about construction is her favorite gig yet.

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