Procore Tech Aims to Improve Construction's Cash Cycle
Getting the payments in is critical in any industry, and when yours is way behind average as inflation bites, it’s tough.
Last month, Procore, a vendor of construction management software, announced a service timed for 2023: Procore Pay, intended to address the cash cycle in construction.
In construction and real estate, even with all the strategies around financial engineering to make projects “pencil,” managing aspects of cash can often get overlooked and, as a result, can be done badly.
“It is a very old story with new and faster technology around it,” Anne Hollander, CEO of Lobby CRE, a Thirty Capital company, told GlobeSt.com in the summer. “Historically, we all knew it was an issue, but it hasn’t been adopted [widely] in real estate.”
Cash management is simple in concept: a company coordinates the collection, disbursement, short-term investment, and overall control of cash flows. The function is critical if a company is to meet its financial obligations, have sufficient cash to operate and invest, and gain a return on idle cash.
The cash-to-cash cycle is the term for the time between when a company pays cash to suppliers (taking delays in payment for credit extended) and when cash comes in from customers. Technically, it’s the sum of days of inventory on hand, days sales outstanding, and days payables outstanding.
A Procore company’s survey research of more than 764 construction companies in 2021 suggested that “it takes an average of 83 days to get paid after an invoice is sent.” How big an issue that is depends on the industry. A heavy equipment manufacturer might have a very long cycle as it sources materials, builds products, distributes through dealers, and then gets paid. A business like an ecommerce company taking payments by credit card before shipping, might have one that is a month or less.
Another Procore survey, this of more than 540 construction companies in 2020, claimed that “80 percent of companies report spending a significant amount of time chasing down payments.”
With increasing inflation and resulting rising costs and financing expenses, getting cash in faster becomes more important.
Procore Pay is something offered in combination with Goldman Sachs to reduce “payment friction by expediting invoice review and providing payment options powered by Goldman Sachs.” It saves time by “removing a point solution and associated data entry, integration and payment process friction.” It also supposedly streamlines “lien waiver collection via an automated lien waiver exchange.”