Many construction businesses are strapped for cash because this is actually the slowest paid of most industries, with only about 9% reporting they receives a commission on time. There are many reasons because of this – a lack of technology adoption, inefficient invoicing processes, misaligned incentives and more – however the simple truth is many are one late payment away from going totally broke. This leads to a higher rate of failure in the marketplace, with over half of new construction businesses failing within the first 5 years.
This historically high rate of failure, subsequently, can lead to bad business reputations among banks, combined with the inability gain access to capital. And the unpredictable manner is just getting worse, as the pandemic has made cash-flow issues even more pronounced due to delayed or cancelled projects, supply chain issues, too little skilled labor, inexperienced employees and an uncertain future thanks to the ongoing COVID-19 pandemic.
Ironically, in a post-lockdown era whenever there are plenty of online business offerings available, more construction companies find themselves at a higher risk of going under. How can the industry stem this tide and work towards growth rather than stagnating? How will your business thrive if payments don’t come in on time?
Credit cards are one answer, but many small businesses’ bank cards feature fine print that can sink a business in the long run.
For example, many of these cards aren’t included in the Credit Card Accountability Responsibility and Disclosure Act of 2009 (MASTERCARD Act), meaning the credit card company can raise the interest rate to a higher default rate if the cardholder is even one day late on a payment. This is not always an excellent path for small construction companies doing their finest to pay bills on time, while being highly at risk of overdue payments.
So, what’s the solution? Is there a great best credit card for construction companies and contractors? Listed below are some key considerations to keep in mind when evaluating the credit card that is the right fit for your engineering business.
1. Longer-Than-Usual Interest-Free Credit Periods
While exceedingly sluggish payment cycles are an ugly reality for most, it is simply a fact of life in the construction space and the optimal mastercard for construction companies must accommodate this in both their payment schedules and their policies.
Providing this immediate overall flexibility is great, but longer-term, this can also help construction companies enhance their credit. A lot more you improve your credit, the more capital you can borrow – and the further and further you can grow.
Ultimately, the hope is the fact construction companies will get a taste of what is possible, that will incentivize them to finally take the steps had a need to get their financial houses in better order. A look back at the 2008 recession provides some lessons – according to McKinsey & Company, construction companies that came out furthest ahead following that crisis invested heavily in digital technologies and cleaned up their balance sheets.
Construction has historically been a technology-adverse industry; many construction companies and their clients don’t want to automate payments or use the latest tech to speed up the method – and reduce the cost – of doing business.
Despite the historical hesitancy of construction businesses to look at new technology and use software to conduct business in favor of more traditional methods, more and more organizations are picking right up technology in the last year or two. The pandemic has given construction companies a taste of what’s possible with technology, so expect a paradigm shift for the better.
2. Changing Credit Eligibility Factors
Right now, credit eligibility for small businesses is typically based solely on the owner’s individual credit. This default rule is particularly disadvantageous for minority-owned construction companies (of which there are many), who traditionally demonstrate insufficient credit score and lower fico scores compared to nonminority companies.
Instead of basing credit eligibility solely on the business enterprise owner’s credit standing, the ideal credit card for a construction business will include information from a range of sources, both public and private, that would assist in assessing the company’s true creditworthiness: internal financial data, historical transactions, quality of projects, clients, taxes, public lien info plus more.
Gathering that whole history together to determine the business’s needs and assets is the proper way to go to determine a credit card policy that works for the construction industry in a good and meaningful way.
3. Value-Added Workflows
Technology and automation are ever-changing, and ideally a credit card can support new workflows that speed up billing and address the basis root cause of the industry’s financial woes – slow payments. One example may be automatically attaching electronic receipts for materials purchased to invoices, thus saving hours of tedious manual reconciliation work.
This allows your employees to move on to critical tasks more quickly and efficiently. Whatever saves your small business time and manpower is worth its weight in gold since it allows someone to give attention to tasks and processes that create value for your company and feed underneath line. Nobody profits from busy work.
Increasing Solvency in Construction
The bottom line is that the solvency of construction companies must increase. Bank cards offer one path, but you’ve surely got to watch out for the fine print that could land you in more financial hot water than you ever need or want to cope with.
There are always new small business credit cards rolling out to advertise that feature lots of varied bells and whistles – such as bonus cash-back offers, no advance loan fees and even more – to attract businesses and realize that business. Keep an eye on these in the event something comes around that may be a boon for your small business.
But be sure you’re not blinded by the shine of the offers; it’s important to carefully evaluate them and select the one that is really best suited for the realities of the construction industry and that can help you build your creditworthiness. Remember to think in the permanent when selecting a mastercard for its various extras and add-ons and prevent jumping into a bad deal for a short-term benefit.