The construction industry’s been one of the hardest pressed in recent years. From a lack of skilled labor to supply chain hiccups, construction leaders face some daunting challenges.
As we look forward into 2023, we invited Allen Overturf, the CFO of Welsh Construction, and Jim Campbell, AvidXchange’s business line executive, construction, to discuss the state of the industry.
Overturf has steered financial operations within construction companies for more than 25 years. And Campbell is AvidXchange’s “eyes and ears” in the construction industry.
These industry luminaries discussed three major pain points for construction executives this year, including:
- Talent shortages for skilled laborers and accounting professionals
- Project schedule complications stemming from ongoing supply chain issues
- Payment process hurdles
Read on for a summary of the podcast. Or download the full episode now:
Construction Labor Shortages
In February 2023, Associated Builders and Contractors (ABC) announced that, according to its proprietary forecasting model, the construction industry must recruit an estimated 546,000 workers more than its normal pace of hiring to meet demand.
Additionally, ABC found that the industry averaged 390,000+ job openings per month in 2022, the highest level ever on record. Overturf called these statistics, “more than concerning.”
Construction labor shortages extend beyond the skilled trades to internal operations. The National Center for the Middle Market’s latest Middle Market Indicator report revealed that 52% of surveyed construction executives said talent management would be a top internal challenge over the next 12 months.
That challenge is even more pronounced in finance and accounting departments. In a survey of mid-market execs conducted by RSM, 23% said it’s been “extremely challenging” to hire finance and accounting talent in the last 12 months.
Both Overturf and Campbell have seen firsthand how this labor shortage is impacting mid-market construction firms, causing them to seek solutions that automate mundane tasks and support a culture that meets the needs of today’s employees.
Construction Project Timing
Campbell likened supply chain issues in the construction space to a game of Whac-A-Mole, saying, “You just don’t know what’s going to pop up.” Overturf added, “That Whac-A-Mole game is really fun. But in the real world, that is a lot of stress.”
Material shortages leading to project delays are pervasive in the industry. A National Association of Homebuilders survey revealed that in October 2022, more than 80% of single-family builders experienced a shortage of appliances, transformers, windows and doors.
Surprisingly, delays aren’t the only scheduling challenge Overturf and Campbell see across the industry this year. Many construction firms are faced with the catch-22 of early materials delivery.
When deliveries are premature, firms must figure out a way to accept and store the materials or risk not having them when needed. This leads to logistical complications and additional storage expenses for construction businesses.
Overturf and Campbell agreed these issues are putting a strain on firms and their relationships with subs, suppliers and customers:
Construction Payment Process Hurdles
The current industry labor and materials shortages impede payment timing. In construction, this process is already complex due to high upfront costs and the frequent use of subcontractors.
Overturf shared that his company adopted automation to better manage payments with subcontractors. He’s found this creates a win-win environment, ensuring subs maintain healthy cash flow and remain dedicated to the jobs they’re working for Welsh.
Construction Lien Waiver Process
Lien waivers introduce another layer of complexity to the construction payment process. The highly manual exercise begets a lot of unproductive time chasing paper.
Campbell explained that AvidXchange’s TimberScan offering will soon support lien waivers, notifying AP pros of outstanding issues and allowing them to address matters with a click – all on a single screen. This solution will streamline work for stretched financial teams.
Please note: The “Middle Market Report” podcast is designed for audio consumption. Transcripts are generated using speech recognition software and may contain errors. Please check the corresponding audio before quoting in print.
- Travis Durkee, Sr. Content Strategy Manager, AvidXchange
- Jim Campbell, Business Line Executive, VP of Construction, AvidXchange
- Allen Overturf, CFO, Welsh Construction
Everyone wants to pay the same price they did 10 years ago. But that’s not really what’s happening in the real world. Fully staffing every day, every week across all subcontractor skill levels is nearly impossible.
Welcome to the Middle Market Report podcast. I’m your host and producer, Travis Durkee, Senior Content Strategy Manager at AvidXchange, a leading provider of accounts payable automation, software and payment solutions for middle market businesses and their suppliers. Each month on the Middle Market Report podcast, I’ll sit down with thought leaders from various sectors of the middle market to discuss the trends and innovations impacting their industry.
On this episode of the Middle Market Report, I’m joined by AvidXchange’s VP of Construction, Jim Campbell, and Allen Overturf, the Chief Financial Officer for Welsh Construction, a commercial contractor based in Minnesota. We talk about three major trends impacting the construction industry, which has been hammered with labor shortages and supply chain volatility over the last few years. Allen offers firsthand insight on how construction companies are tackling these challenges, both in the field and in the back office.
While Jim pulls for more than 40 years of construction software experience to talk about how companies can help solve today’s problems with modern solutions. With that said, here’s my conversation with Jim Campbell and Allen over turf.
Welcome to the Middle Market Report podcast. I’m Travis Durkee. I’m sitting here alongside a colleague of mine, Jim Campbell. And on the other side of the line we have Allen over turf of Welsh Construction. Jim, tell us a little bit about yourself, what you do here at Avid and your experience in the construction industry and why we should take what you say seriously.
Well, you certainly shouldn’t, for starters. But, yeah. Jim Campbell, thanks for having me here, Travis. And you have been an Avid here now about seven years, but this is I was just doing the math this morning coming up on my 44th year in construction technology. So I’ve seen a lot of changes over the years, started back in the early days with Timberline Software, now known as the Sage 300 series product.
So it was early stage with that about three years before the PC was invented. So different platforms and different technologies here at Avid, I’m the vice president of construction. I head up the construction market, so I try to try to be the eyes and ears to the construction industry, understand what’s going on, what the market needs are, and trying to learn how will our products fit those market needs for contractors.
All right. So you know a thing or two about a thing or two.
Perhaps. Allen, how about you tell us a little bit about yourself?
Yeah, I’ve been in the construction industry for about 25 years in other industries. Before that, I’m the CFO at Welsh Construction and one of the owners of the company. So I’m in charge of many hats, but exposed to the entire company daily to kind of gauge what the needs are for the company in the industry and how my team can help support the company.
Can you give us a little insight on sort of what Welsh Construction does now? What are you what’s your specialty? What’s the size of the company? What about the size of your finance department? Those things are some company demographics for us.
Yeah, the demographics of the company. We’re a small to midsize company in Minneapolis, Saint Paul area, a local general contractor, commercial contractor working in a number of different industries within commercial providing kind of improvement or what we call renovations of small to large spaces as well as ground up projects anywhere from 1 million to 25 million. And within the department that I work in, we have a lot of overlap.
So I would say we have the equivalent of 3 to 4 people in the finance administrative. And I’m just blessed to have a great team that’s super efficient and open to all the industry changes, kind of pivoting when we need it.
Construction Industry Challenges: Labor Shortages
Absolutely. So today we’re going to go through what we deem to be sort of three trends going on in the construction industry. Some of them good, some of them not so good. Some might send some shivers down your spine, Allen, because they might hit pretty close to home. But we think they’re pretty important for, for companies around your size, a little bit bigger and really, really any construction company in the country.
So I’m going to start here. We’re going to talk a bit about labor availability. I’ll set the table here by saying in February, a proprietary model developed by the Associated Builders and Contractors, ABC for Short revealed the construction industry will need to attract an estimated 546,000 additional workers on top of the normal pace of hiring in 2023 to meet the demand for Labor, according to the report from the ABC, the construction industry average more than 390,000 job openings per month in 2022.
To them, that’s the highest level on record. So it’s a real problem. Allen As someone who lives in this world, how do those numbers sound to you? They sound about right. And how has your business been affected by the shortage of skilled labor? At the at the skilled labor and subcontractor level?
Yeah. When I hear a half a million in one year, that’s staggering, considering we’re already in a and a huge deficit. And it’s not just within the company that I work, work in daily, but being a general contractor, we subcontract out between 80 and 90% of our work and all of those subcontractors that we work with, some are our newer companies that we may not have 40 years of history with and some we do have 40 years of history with.
They are always scrambling to meet schedule because of their own labor shortages and retirement is out there outpacing the skill level coming in. So it’s definitely a concern. I don’t think the market has adjusted. Everyone wants to pay the same price they did ten years ago. But that’s not really what’s happening in the real world as far as the cost of construction, the schedule, meeting schedules, doing a simple office renovation in three months may now take four months.
It may not take that completely different set of hours, but staffing, fully staffing every day, every week across all subcontractor skill levels is nearly impossible. So when I hear a half million going in the hall further than where we are today. Yeah, that’s more than concerning.
This issue extends beyond skilled trades to internal operations, to a different report from the National Center for the Middle Market. 52% of the construction executives surveyed said talent management would be a top internal challenge over the next two months. And if we focus that lens, even tighter than that, the challenges most daunting in finance and accounting departments.
And another survey of mid-market executives conducted by RSM, 23% of those surveyed said it’s been, quote, extremely challenging to hire finance and accounting talent in the last 12 months. That’s a higher rate than IT operations or even human resources. And I’ll start with Allen again, and I want you to jump in here soon, Jim. But Allen, how is your department functioned in the last 12 to 18 months?
Has there been a talent issue there? And Jim, after Allen talks about it, what are you hearing from other construction companies when you talk about their finance and accounting teams? Allen, you can go first.
Yeah, I think I guess my experience has been the that the talent is out there. But the expectations for what they’re looking for have changed, especially since COVID, the work life balance and working remote is, is one challenge. And then the other piece of it is finding talent that has that what I’ll call just construction experience that’s even a smaller niche.
So it would take me probably 2 to 3 years to ramp up somebody that has no construction experience in accounting. That’s assuming that they’re excited and interested in what I would call a little bit more of a complex accounting system, tracking costs by job, by Costco at various levels. And then as soon as you get used to that today, tomorrow, more projects start and it all changes again because the new projects are different than the ones you worked on yesterday.
So I agree with that, that the talent challenge that you mentioned, to be honest, I didn’t know that that’s even more challenging than some of the traditional challenges like IT. Sure. That’s super interesting to me.
Yeah, it sort of crept up on us, Allen it seems. And, but, but it’s true, you know, we talk about construction, labor shortages at large. Our mind first goes to the skill trade, but it is true that it is bleeding into the back office. And probably a similar thing that Allen said earlier about the number of retirees versus entrants or entrants into the into the trades is a real challenge and just quantity and not so much quality but perhaps the work expectations construction is not intuitive, right?
They don’t like construction accounting. They don’t teach at a whole lot in school yet was say to people like Allen to mentor that and apprentice to them just like you run apprentice a skill trade coming in construction accounting is complex you know you’re dealing you’re dealing heavily with committed cost. You’re dealing with committed costs, with purchase orders and subcontracts.
The job cost structure, revenue recognition, all of these things are very nuanced in in the back office for the for the construction accounting industry. And there is quite a learning curve there. You’ve got to be passionate about it. You got to be smart, willing to learn and it’s a lot of hard work. We are seeing an attraction of with the new labor force coming in, you know, high expectations of automation.
You know, they want the right tools to do their job so they can apply their expertise but not spend, you know, hours just doing the mundane work of keying invoices and code. You know, they want to eliminate the paper. And that’s a whole for some companies, that’s a that is a culture shift. And so for some companies, a little bit behind in that, providing those automated tools in the back end.
Right now, I’m going to jump in here. Allen, I know you have a pretty robust tech stack. There are there are Welsh. Has that helped curb any negative impacts related to your workforce or even those, you know, that work more in the field as opposed to in your back office?
Yeah, I think what Jim mentioned is completely true. The more you can automate and the more you can enable somebody be to be very efficient in what they do and try to cut out as many of the repetitive, mundane, mindless time that you spend. Actually, sometimes a mindless task is kind of a nice breath of fresh air.
But if you have that 8 hours a day, you’re not going to retain somebody because a really strong, ambitious person is going to is going to thrive on challenge. And so automating and always looking for something that will help your company, your subcontractors and staff company wide. I’m not the type personally to jump on the latest and greatest because I could make that a full-time job and probably create a staff of ten.
But to be very cautious and intentional to say, you know what, this is going to help us today and long term, let’s launch this and do it right is critical in retaining good staff and just plain being more efficient.
Yeah. I think your numbers that you introduced speak for themselves. You’re doing quite a bit of work, quite a bit of volume with three or four people, you know, that back-office staff and probably can scale that everybody is striving to do more with less right. And grow your revenues at a rate much higher than you’re growing your, your, your drag or your overhead.
Allen touched on something earlier in the conversation about the remote work. I think remote work is here to stay, or at least the hybrid environment is here to stay. And a lot of the people coming in to any job descriptions, that’s top of mind for many of them. You know, maybe again, hybrid is probably the best solution in construction.
But when you can eliminate the paper and use technology to eliminate paper and get to a digital platform, that does enable the possibility of a hybrid workforce. And ultimately, you know, that increases the quality of the work life balance.
Construction Industry Challenges: Supply Chain
Yeah, no question. I think we’ll move on from that a little bit and talk about, you know, when you have these sorts of issues with labor, we’re talking about we talked about the shortage of labor and talent and sort of zoom by any ongoing supply chain issues that are still in play throughout the industry. And both of these issues ultimately lead, you know, to our next talking point.
And that’s project delays, Jim, I want to start with you, because we were talking the other day as friends do, and you had a great analogy for the state of the supply chain and procurement situation and construction. So I’ll let you take it.
So let’s talk with the contractor. And early on in the days, you know, let’s just call it the COVID days and pre-COVID days, kind of the first thing hit was price increases. So we had price volatility was a was a big issue. And then that suddenly was overcome by a more threat, a bigger threat. And that’s product availability or supply chain availability.
And early on in that, it was the commodities, it was very kind of predictable of the items that were what were in short supply. But fast forward to today, and I think your contractor said it, described it very well. It’s like playing Whac-A-Mole. You know, you just don’t know what’s going to pop up. So just to use some examples, you know, boom, suddenly we can’t get doors and windows or a boom.
Suddenly we can’t get hot water heaters or electrical panels. And some of these things sound small. But when you can’t get them, they can ultimately lead to, you know, worst case, a work stoppage or certainly it’s going to extend the project, right? It’s going to delay the project, which we all know in the business. Any time, any anytime you slow it progress, you slow up everything, including billing and cash flow and those types of things.
Customer satisfaction. And when can I get my certificate of occupancy? You know, when’s the project going to be done? So yeah, in this game of whack a mole, you still don’t know. And it’s even down to the component level. May I can put in your AC unit, but we’re missing these parts internally so it won’t work. So we can maybe install it, frame around it, but we can’t go live with it until these parts and supplies come in.
So I think the Whac-A-Mole game just sticks in my mind and describes it beautifully. It makes it even more challenging because you just don’t know what’s going to pop up tomorrow that might disrupt your supply chain.
Right. Allen, does that make sense for your company?
It is, Jim. I just want to tell you that that Whac-A-Mole game is really fun. But in the real world, that is a lot of stress.
That that raises anxiety and stress. I completely agree with how you explained it, Jim, and from our experience. And I don’t think it’s that different here in in our market in the Minneapolis St Paul Minnesota market. I don’t think it’s any different in any other state in the United States to simplify it. The surprises and what you’re not going to get is a is a real issue.
And you can’t get you can’t rely on 100% on everything. And if you get 90%, it’s like it helps. But you can’t get that certificate of occupancy until everything is installed and approved by missing a component that might also hold up a number of different trades because you can’t complete the HVAC system and the mechanical and electrical everybody else.
There’s a number of trades that are now held up to finish that space with sheetrock and paint and trim and that kind of thing. The other challenge that that might surprise some people that might not be as close to the construction industry as Jim or myself is. I’ve also experienced there may be materials that are delivered early.
And that’s that sounds like that may be a little bit of a surprise and isn’t that great? But here’s the problem. The materials that that might be surprisingly delivered are really the space isn’t ready for all that material. And it could be some of the furnishings that are done in the last three weeks. The reason why that is a concern is, is you might have a whole semi load of materials and they bring it along with some something else.
Now you’re faced with do you gamble and say, no, I told you I don’t need that for three more months. And the supplier will say, okay, I get it, but you might not get it when I when you need it if you don’t take it today. So as a general contractor and working with all of our subcontractors, we’re faced with how do we stop it and accept it?
Because we want we want to grab it now, otherwise we’re not going to have it available when we need. So it’s there both sides of the coin and sequencing. When you get the materials, if it’s early, it’s a problem. If it’s late, it’s even a bigger problem. But we’ve faced a lot of extra outside storage costs in the last 18 months that I’ve never seen before.
I’m glad you brought that up. And I think that’s a great segue because I was going to talk about, you know, with the uncertainty around supply timing and general labor availability, this this constrain those relationships with owners or contractors and suppliers and between contractors and their subcontractors. You know, Allen, how do you there are well, you know, handle situations kind of like the one you just talked about, you know, with these issues, whether it’s upstream with owners or financers or downstream with your subs and suppliers.
00:20:38:02 – 00:21:25:18
Well, it definitely creates a different anxiety than I’ve seen prior to the last three years. The pinch. It would be great if every project and in construction said, you know what, we have a completion date of July 1st, but if you miss it 2 to 5 months, it’s no big deal. Hardly any of our projects. If we say July 1st and once it gets to May, they’re already kind of nibbling at our ears saying, Can you get done by maybe June 3rd so that we can start moving things in and take some pictures for our grand opening, whether it be office space, industrial space, retail space, it really doesn’t matter.
And when we have to start delivering some sequential scheduling challenges and we’re pivoting as best as we can, but between the labor, the weather, weather can be an issue and the supply chain challenges. Trying to scramble for July 1st is already very difficult. And even if you give somebody an advance notice and say, you know what, it’s May one we’ve been talking about July one is going to be tight.
And here’s the reason why we’re not going to get the certificate of occupancy. Let’s plan ahead and make sure, you know, it’s not July one. It’s going to be August 15th. It’s the communication can be open. But the cost to the company, the frustration, it’s all real. And I understand why that frustration is there. So it puts everybody in a really bad spot.
And I’ve also noticed sad to say that because everybody is stressed with labor and supply chain, it’s been a very common reaction among all all companies within construction. And they all look at each other and say, well, I know it’s not my fault. And, you know, the discussion with the result isn’t always very popular, but we’re trying to be open and honest and transparent is the only chance we have to try to maintain that relationship and that expectation of what’s realistic, what’s realistically going to happen.
I think we’re just in we found ourselves quickly in a different world. And I would say to solve this or reduce some of that friction, owners are going to have to be more aware of the realities of what’s going on. It’s these are these are issues that are and to a large degree, beyond the contractor’s control, particularly the supply chain issues in every one of these things stretches out duration.
It may or may not increase calls, although anytime you increase time, typically it increases cost as well. But if you’re going to get an end product that you’re satisfied with in today’s world, you really you really got to be more flexible than perhaps you’ve been in the in the old days when everything was readily, readily available. It it’s, you know, what’s your what’s your alternative?
Well, your alternative is to wait years until maybe things normalize again. But you’re going to be in further you’re building the building for a purpose. You know, if it’s a manufacturing facility, you want to start manufacturing, but you just got to be a little bit more tolerant today and a little bit more flexible to not play the blame game and just address it. Reassess when, you know, a major shortage comes to play.
Yeah, I think that all makes sense. What you said just the other day resonated with me, Jim. It was more so when you’re when you’re dealing with your subcontractors and your suppliers and that constant communication that you must have at this point, they’re downstream and sometimes it’s almost like micromanaging, but it’s not. And you used a good term where you where you said we’re just it’s our job to inspect what we expect.
That’s right. And that that conversation was really around a solution. And Allen described some great solutions. If you want to be sure that materials are going to be in place on time, the best status for those materials to be is in inventory. Now whose inventory? Okay, we’re used in construction to what we call stored materials. And now and correct me if I’m wrong, but that typically implies stored materials onsite, right there, onsite there.
They’re ready to be installed. But we can visibly inspect them, and we can give you the progress building credit to them being on site. Well, it’s probably a relatively new concept to say, well, we want them in inventory. We want them from your warehouse supplier. Go ahead and order them early, get them in early so we can be sure they’re there.
They’re in your warehouse. They’re they’ve got our name on it. They’re earmarked for us. Well, that’s fine. And that’s a that’s a great solution. But that’s going to put pressure more upstream pressure on cash flow. Okay. Who’s going to pay for that? I don’t think we have a provision that extends stored materials while they’re in someone else’s warehouse like a supplier.
We may need to think through that. We may need to talk to owners about that. And because, again, given that you’ve got a place to store them and that you can incur maybe a twice, two times move versus a one-time move in those types of things that add to cost, it is the best way to normalize the critical path flow of construction with high assurance.
Listeners maybe noticing a theme here and that’s that things are pretty complicated nowadays just in the industry, you know, late labor and material availability issues make these timelines tricky, right, Allen? And tricky timelines can, can make they make everything else trickier, especially we can talk about payments.
Jim, you know a thing or two about invoices and payments in the business.
You know, every day you try to simplify this process for businesses within an industry that certainly needs it. What are you seeing on this front, both as challenges and solutions on the payment front for construction?
Construction Industry Challenges: Payment Hurdles
Well. Well, everything we’ve talked about ultimately affects money, right. Or affects cost and payments are correlated to cost. Right. That that type of thing. So, you know, a couple of things that I’ve seen is going all the way back to labor shortage. General contractors today want in the relationship between them, and their services have never been more important.
And one of the things that does make a good relationship is timely and accurate payments. You know, I’ll hear it from the subcontractors or the trades point of view that will say, talk about a GC, they’ll say they’re a good GC, they pay. Well, it’s almost like the second the second thing that comes out of there, it’s not even a period, it’s a comma, you know, they’re a good, good GC to work for, they pay well.
And so that that just means that they’re getting credit for the work that’s in place and they’re paying in a timely manner for, you know, for the work per the schedule of values that has been determined. A lot of that has to do with compliance and getting, you know, no compromises there. But when everybody does what they say they’re going to do in order to have a full pay up, you know, that’s a that’s a huge one.
Another thing we’ve talked about here, just on going back to the, you know, the order early inventory type of situation, we’re probably going to look at payment differently. I don’t know that I can expect someone to order the supplies earlier without having to discussion about maybe putting more of a deposit down or paying a little bit more early than I normally would for stored materials.
Say, for example, that’s a new way of thinking and that’s got to trickle down. It has to first trickle up by owners and get some cooperation there on how we look at things differently. All of this ties back to a committed cost. Not only securing, you know, committed cost does ideally three things and we skip one of them oftentimes, you know, it conveys the scope and specifications of what we need.
Right. That’s very, very important in construction to get the right stuff, the right size, those types of things. Number two, it does lock in a cost, typically challenges with that with price volatility. But I think that’s that stabilized a little bit, volatility versus availability. But the third thing goes to goes to availability. When do we need it as those are the three elements of good committed cost and that when do we need it?
If you’re going to push that up, that could have an impact on payments as well. Hopefully that makes sense.
Yeah. Allen, we mentioned your tech stack earlier a little bit. Can you tell us about how your department handles its invoices and its payments and how does the digital aspect of all that helps your business in other areas as well?
Yeah, a few of the things that we’ve done is one, we automatically send reminders to every subcontractor that has an unbilled amount. We send them a reminder and say, make sure you get your billing and send it to this email address and make sure you don’t miss that deadline. So it’s interesting because we try to be proactive so that the subcontractors and suppliers can be successful with their cash flow like Jim talked about.
There’s no way that it works. You can’t work as a team if you’re setting somebody up for failure and just say, well, you missed the deadline, so you’re going to have to wait another 30 days, that that creates a rub. And as Jim talked about, that rub isn’t going to work out very well for anybody. So that’s one of the things that we do.
The other thing is we would be a big crash and burn with our core associates and timbers. Can the invoices come in electronically into our company? In a few different ways. But the majority of it is electronic money. And because the electronic workflow is paperless, it’s very easy for a small department with large volume to say, make sure you get all of these invoices reviewed and approved or addressed timely so that we can bill timely.
And there we don’t have any invoices that are sitting in somebody’s zoom box and now they’re on vacation and we skip billing for the work and then we can’t pay people timely. So that efficiency because accounts payable and construction drives a lot of transactional activity from a payments standpoint back to the suppliers and subcontractors. That efficient efficiency is just amazing.
It’s so powerful, but yet simple. And there’s some other things that that I know that Core Associates and AvidXchange are introducing to make that efficiency just complete the loop and just get that much stronger.
Yeah. Before we jump to that, I want you to sort of dove in a little bit more about, you know, kind of what Jim was saying. How when you when you are you’re helping suppliers and your subcontractors help themselves with these reminders and paying them on time. And do you find that it makes your jobs more attractive for them, especially in this time when you need that labor force?
Yeah, I think the more you can create a successful environment and workflow, the better, the better everyone is in the in the entire process. If we have a subcontractor, as we were talking, mainly because I was yapping away, I was thinking about the shortage in accounting. That is that is very true in the small to middle market companies where they are just stressed trying to keep up.
And if our company if Welsh as a company can help them proactively meet the deadlines, it only helps their workflow and their success if they don’t build timely and we don’t bill the customer or owner timely and now they get into a significant cash flow deficit because they’re not being reimbursed for the labor that will pinch them in a way where they might just say, You know what, I know we missed the deadline, but if you can’t pay us, even though it our fault, we’re going to have to go to a different job site and let me know when you get the cash over to us because we can’t afford to operate.
So we try to be as, you know, try to prevent that that situation is as best we can. So the staffing and accounting and the labor shortage, it’s amazing how those can collide when that really wasn’t on your radar. But if you don’t have processes in place to prevent that, if it comes up in a conversation and as a general contractor, you don’t have a lot of leverage to say, well, tough.
That’s not going to work.
Yeah, it’s you know, clearly, I love hearing the comments and the appreciation of the impact that the products have had on your business. But, you know, just fundamentally to people that are listening to this at large, it I think the first area of productivity to help is get the paper out of the out of the equation. You know, the more you can eliminate the paper, the paper bound systems in construction are or the least productive and the most problematic and they’re the most error prone.
So we often start with where the most paper is. And that is that is getting rid of paper invoices. And there’s so much more we can do on the electronic ingestion of that, that now we’re really talking measurable productivity in eliminating those mundane tasks that nobody likes to work with. Probably the second biggest area paper is paper checks, you know, and I think our goal here at AvidXchange or an automation goal for the industry should be, you know, let’s try to get all of the components of our complete purchase to pay on an electronic platform.
And once you’ve got it, once you’re in a world where you’ve got your committed cost, your receivers, your invoices, your payments, payment statuses, your compliance documents, probably the most notorious of which are lien waivers. And the payment itself, you know, in all in electronic platform, there are tremendous immediate efficiencies associated with that. And then one of the most wonderful byproducts or could possibly be, which is data archiving and retrieval, let’s say three years from now, heaven forbid you’ve got a claim on you’ve got to produce every invoice and purchase order and payment that had to do with the stucco on a high-rise condominium building or, you know, make up your own scenario.
I don’t need to explain what claims are. We’ve all experienced them, but being able to do the discovery and produce and everything in the end in a matter of minutes as opposed to a matter of months, because that this platform is in is in one electronic location, accessible through indexing and filters that can produce what happened.
Right. I’m going to stick with you, Jim, because, you know, you brought up lien waivers and our and our TimberScan solution will soon support those lien waivers. And by tracking the status of existing lien waivers, we’ll have the ability to associate the release of funds with the receipt inspections of those waivers. Can you expand on that a little bit and outline how functionality can impact a business?
Yeah, the lien waiver. The leeway process today typically is highly manual and it’s just another choke point for that. It reduces nonproductive time in a paper chase. And when I first started years ago, I thought it. I thought a hammer was used to drive nails and to invoke force. Now, a nerd learned that payment is the real hammer.
We use payment to enforce and drive, drive behavior and modify, modify behavior. What I mean by that is a typical scenario today is a payment goes out, an accompanying lane waiver goes out, which once the payment is received reasonably expect for it to be signed and returned. And the enforcement on that and many, many companies today is the next payment.
So if, if lien waiver one for payment number one is not returned, we are going to hold payment number two because we need to get the loan waivers. We the general contractor need it because the owner is requiring it. And that’s the owner’s proof that everyone has been paid in the process. And so there’s this real laborious paper chase of out, out and back.
And even if it’s electronic, how do we know? So what we what we’re doing there is associating outstanding lien waivers with future payments and having it digitally available. Right. So you can immediately be notified if there’s something outstanding. And then with the click of a button, see what’s outstanding and take action on it from there, all from all from a single screen.
So for example, if that needs to be reset received, it can all be done electrically, electronically and conveniently. And then with its integrated tracking system that tracks into the payments, you know, there’s a lot more I could talk about beyond that, what we could do in terms of getting lane waivers in early yet protecting the sub make them non executable may be visible by the general contractor, but not executable until payment has been cleared and when payments are electronic, we can control those things.
We know when it’s sent, we know what account it’s sent to and we can get verification back that it was successfully submitted to the subsequent, which might trigger an immediate release of a lien waiver that is in waiting or has been staged once the payment has been made. So theory is, you know, there’s no reason not to settle in way if you’ve received full and sufficient payment and there’s not an unwillingness to do so.
It’s just a matter of getting around to it or yeah, I forgot or a mailed it and it’s lost in the mail or where is it? Well, as long as it’s a piece of paper, you’re going to have those issues. If we can put on an electronic platform, we think it can ease a lot of friction and a lot of paper to eliminate a lot of paper.
Allen, does that make sense to you?
It does. I have a lot of conversations with people in the construction industry, including anyone. That’s some that are in accounting and finance and some of you that may be listening to this. I can already anticipate a small percentage of you that say, Oh, we already do all that, already track all that. I call that manually automated.
So you have a manually automated process where you capture the line waiver, you maybe track it. Well, first of all, you have to put it in a spreadsheet and then you exit off, you have it and then you scan it and you put it into a folder and then somebody asks, Which do you have all your lien waivers for this month, that month, various projects, and you go back and you’re manually automated spreadsheets and you figure out where you’re at.
I’m excited for the possibility of having a truly automated, integrated lien wherever tracking system that ties to the invoice and a check printing the cash disbursement piece of it because to me that completes the full cycle and it’s truly automated versus the laborious time of collecting, tracking And Jim, you mentioned it earlier that all paper chase trail process that still exists in construction.
I know it does. And it’s not the minority. It’s there still it’s still a real challenge that also creates a lot of errors, mistakes, missing the whole story. And so this simple piece, which is lien waivers, is another piece to the process that’s critical, just like the beginning stage, which is processing the invoice.
Mm hmm. Great. I think the Holy Grail here is, is to get all of these components on a single electronic platform that, you know, integrates with the ERP systems, of course, and integrates with project management where it needs doing those types of things. But the measure success for me will be when, when I see a valued customer that can say, you know, I had to go in and, and pull out some work I did three years ago, everything from the purchase order through the payment, including all the clien waivers and all the receivers and all the approvals and everything in between.
And I could do it with the touch of a few buttons. That’s when we’ve arrived. So if that’s the destination, how do we get there? And my, my advice is to start somewhere. And that somewhere probably is, is with your invoices, you know, get those in electronic workflow, as Allen has done there for Welsh and then move quickly into the payments.
And by accomplishing those two things, you’re really well on your way to begin the platform of additional productivity you won’t be ready for. You can’t start we can’t start with lien waiver piece of it because there’s it’s guess what it’s dependent on, you know, the invoices that produce the payments that then can produce a lien waiver. So, so there’s some variability in the sequence, see, but getting your invoices automated, get your payments automated is that should be a goal for, for I think any construction copy or at least a piece of that in 23.
And then you started and you get adjusted to it, you get used to working for that in that digital platform and then you see what byproducts you have, such as enabling remote workforce or hybrid environments and those. There’s a lot of goodness that can come from this automation if we just embrace it.
One of the things, Jim, that and Travis, one of the things that I used to do and I maybe I’ve lost my flair of messing with people, but when I get when I would get a request toward the end of a project and they would say, you know what, our bank needs a copy of all of the invoices, over $1,000 from the day one to the end.
Is that something you can do? And we weren’t providing it on a monthly basis. We were providing a detailed billing and that was acceptable. And what I used to do, and it’s been a little bit but they would say, oh, wow, well, we’ll definitely help you out. Let me get back to you in a few weeks. It’s going to take some time to pull that.
And I wish I would have known that at the beginning of the job that this is going to be a banking requirement. And then about 20 minutes later, I email a copy of the entire project with all the invoices and back up with a summary and just kind of wait for the call. Like, what? How did you do that so quick?
And it’s just really satisfying that again, that’s that efficiency of providing service, using the electronic images and data and data points, and then enabling accounting or administrative to be so efficient in providing such a big package of, of history, whether it be that day or two or three years later after the project is done. It’s just the value is huge.
You’ve created the value, Allen, by the way, you’ve organized and orchestrated the intake. Right. Because it, it, it came in that way. It can then be produced that way. So, so your insight on the front end solving the front-end productivity problem in eliminating the paper earned you that value add that you just described.
And hopefully they get my sense of humor.
Allen, I really appreciate you injecting a little bit of humor into what’s been an otherwise pretty serious conversation, but I think we’re going to wrap it up there. Jim Allen, thank you so much for being part of the Middle Market Report podcast, and I’m sure we’ll keep in touch.
Well, thank you, Travis.
Appreciate the conversation.
Thank you for listening to the Middle Market Report podcast presented by AvidXchange. If you like what you heard, make sure to leave a five-star review and subscribe to the channel while you wait for next month’s episode. Head over to AvidXchange.com for more exclusive insight into the state of the construction industry. A direct link is included in the show notes, along with links to AvidXchange’s, LinkedIn and Instagram pages.
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