Stories about the increasing value of bitcoin and other cryptocurrencies are flooding news feeds these days. Although you may have only heard about cryptocurrency in the last couple of years, it’s been around for quite a while now.
In a bid to speed up the receipt of payments and make it easier for their customers to pay, some contractors and vendors in the construction industry have already jumped on the crypto bandwagon. With contractors waiting up to 83 days for payment, anything that offers speedier processing is worth the risk.
Should your company be next? Here’s all you need to know about accepting cryptocurrency in the construction industry.
What is cryptocurrency?
Cryptocurrency is a decentralized digital currency that is gaining popularity. You may have heard it referred to as “Bitcoin,” but that’s actually a brand name. The currency is not backed by any government entity, so it’s not subject to differing exchange rates like most local currencies are. Because of this, international purchases can be completed more easily with cryptocurrency.
The currency can be used to purchase goods and services from retailers around the globe, like any other type of currency. Some big-name companies now accept payment by cryptocurrency, but it hasn’t become mainstream quite yet. Only a limited number of contractors are using cryptocurrency to accept payments at this time.
The value of the currency can be quite volatile, as it changes as the market changes, similarly to the stock market. So, the amount of currency you’ll need to pay for a given purchase varies depending on the value of the currency. In the same way, if you’re paid with cryptocurrency, the cash value that you receive will vary depending on the market.
Cryptocurrency is considered to be immune from inflation because there’s a fixed supply and governments can’t manipulate the value. Of course, the market manipulates that value based on supply and demand.
Benefits of using cryptocurrency for construction companies
Two of the major benefits of using cryptocurrency to pay for goods and services is that there are fewer fees and the money is available almost instantly.
Pay less — and get paid faster
Instead of paying bank fees for wire transfers or credit card processing, providers pay less than a cent per transaction. Plus, cryptocurrency can be instantly transferred into cash and deposited into your bank account, cutting down the time it takes to get paid. Offering crypto payments can get you paid faster than the old paper checks, or even faster than other electronic payment methods.
International transactions are simplified
For international vendors, using cryptocurrency avoids exchange rate calculations and converting cash into different money types. International payments are easier because everyone processes the transaction using the same type of money, and then they exchange it for their own local currency.
Cryptocurrency can gain in value depending on the market. So, vendors can hold currency in their account waiting for the value to rise, and then cash it in for there to be a gain. Of course, this also means that the currency can lose value, creating potential losses.
Vendors have more control over their funds
Transactions cannot be reversed by the purchaser, which means that vendors have more control over the funds in their accounts. If a customer wants to get their money back, they must request it from the vendor, who can pay in cryptocurrency, local cash, or exchange for goods or services. This protects vendors from customers who make purchases and then cancel them and don’t return the merchandise.
It’s easy to get started
Setting up a crypto account is fairly easy. There are lots of service providers to choose from. Once you sign up for an account, you get a virtual key that allows you to both accept funds and send them out. Check out service providers thoroughly before you sign up, as their terms and conditions will differ.
Offering crypto payments can be good for PR
Offering cryptocurrency payments to your customers can be good public relations.
It’s a chance for you to send out a press release, which will get your company attention, as well as show that you are up-to-date with current payment technologies.
Cryptocurrency in construction: Things to watch out for
The use of cryptocurrency hasn’t hit the mainstream yet, so there aren’t a lot of customers that are going to be able to use the service. However, use is expected to grow in the next few years, so you can expect an increase in crypto sales as more people find out about the benefits of using this type of currency.
Meanwhile, you’ll need to educate your customers about how cryptocurrency works and the benefits it offers.
No legal payment protection for transactions
When customers pay with credit cards and other forms of payment, there are legal protections that are part of the agreement between the customer and the payment provider. Cryptocurrency has no such legal protections for those who use it. Vendors and customers must rely on trust when using cryptocurrency. Once a payment has been sent, the customer has no way to get their money back other than to request a refund, which has to be initiated by the vendor. This lack of protection for consumers may discourage the use of cryptocurrency.
No government oversight
Part of the draw for using cryptocurrency — in construction and otherwise — is the lack of government oversight, but this can come at a price.
There is no government oversight on the use of cryptocurrency, and no help available if something goes wrong during a transaction. That’s why it’s important that you research various service providers and know the terms and conditions of the agreement for using their services.
Vendors may be subject to capital gains tax
All sales made using crypto are taxable at the fair market cash value when the money is received. This means vendors have to keep accurate records of the value of the currency every time they receive a payment. In addition, they are subject to capital gains taxes on the income they may receive from an increase in market value. Accounting departments will need to focus on tracking the value of the currency and recording those values when monies are received. That value will be reported on the company’s financial statements as taxable income.
Anonymity can carry risks
Because setting up an account is so easy, most users remain fairly anonymous. This anonymity can be taken advantage of by criminals and those with less than honest intentions. Transactions can be tracked, but the value of the information is limited. If ever there was a case of “buyer beware,” this is it.
Crypto’s cash value may still be volatile
Right now, cash value of cryptocurrency can be extremely volatile.
For example, $100 in cryptocurrency purchased in 2014 now has a value of over $12,000 in 2021. Vendors can hold on to their cryptocurrency and hope it increases in value, but they could also lose a substantial amount. And those gains and losses are taxable as income, so they must be reported to the IRS.
How to get started with cryptocurrency in construction
Getting started with cryptocurrency in construction is fairly straightforward and easy. As always, we caution that you should research providers carefully and look at reviews before opening an account. The industry is not regulated and there’s no recourse if something goes wrong.
1. Get a cryptocurrency wallet
The first step is to sign up for a cryptocurrency wallet. It’s similar to a real-life wallet, in that it is where you store all your currency. You use it to buy, store, sell, and exchange cryptocurrency for cash. The wallet comes with a private key, which is a secret number used to access your funds. The key can be stored online in the cloud, on your local computer, or on an external hard drive, depending on the service provider you choose. No matter where it’s stored, the security of the key is up to you. If you lose the key, there’s no way to recover it and you lose access to your wallet, unless your provider has provisions otherwise.
2. Sign up with a payment processor
The next step is to sign up with a payment processor that will allow you to sell using cryptocurrency. More existing payment processors are adding this to their services, so you shouldn’t have trouble finding one. The processor is used at your point-of-sale to create the transaction between your customer and your company.
3. Make sales using cryptocurrency
Now you’re ready to start making sales via cryptocurrency!
You start by entering the information about the transaction into the payment provider software or app. This will include the local cash value of the sale and the customer’s information. Then, the processing software will create a QR code that the customer scans with their cryptocurrency wallet app.
Once the customer approves the transaction on their end through their app, the cryptocurrency is transferred to your account. At that point you can keep it in crypto form or exchange it immediately for cash. The transfer of funds is almost instantaneous, so there’s no waiting.
What construction contractors are saying about crypto
Naples Luxury Builders, a custom home builder in Naples, Florida, recently started offering crypto payments for their homes.
“Over the course of the last three weeks I’ve probably gotten two to three calls a week from people specifically asking about the payment of Bitcoin,” said Hans Haedelt, the listing agent for the contractor. They believe that more options to pay means more potential buyers and ultimately more money.
Fire & Ice Heating in Columbus, Ohio also recently started offering Bitcoin payments. Their website states: “At Fire & Ice, we want to be forward-thinking in everything we do. This includes our training, services, the equipment we install, and now the way we can process payments. For the majority of our customers, this won’t change anything and they’ll never need to think about Bitcoin. But for those with Bitcoin investments, this allows another way for us to facilitate services.”
Cornerstone Construction, a roofing contractor in South Carolina selected Coinbase as its cryptocurrency provider, and can now accept payments by Bitcoin, Bitcoin Cash, DAI, Ethereum, Litecoin and USD Coin.
“Accepting cryptocurrency offers us a significant opportunity to better service a new, affluent customer base and participate in the continuously expanding cryptocurrency economy,” said David Massey, CEO of Solar Integrated Roofing Corporation (a division of Cornerstone).
“With younger homeowners increasingly demanding alternative options for payments, Coinbase Commerce allows us to accept cryptocurrency as a form of payment, yet receive U.S. dollars as we normally would, all without having to hold cryptocurrencies.”
Staying on the cutting edge
Getting started with cryptocurrency in construction is fairly simple and it offers less expensive payment processing than bank wires or credit cards. Vendors and contractors should research providers carefully, choosing one that is widely used and trusted. New providers will undoubtedly spring up as the use of cryptocurrency gains in popularity.
You’ll want to make sure that your terms and conditions of sale with your customers are clear and that you get as much information about them before they make a purchase as possible. You may need the information later if there’s a payment dispute.
Cryptocurrency may be the future of payment processing, especially when it’s backed by blockchain, which enables automatic payments based on the progress of the work. More contractors and suppliers are bound to start accepting these types of payments because they speed up the processing time and are less expensive.
No matter how contractors get paid, however, they will still need to protect their right to payment by sending preliminary notices and enforcing their right to file a lien if they aren’t paid. The need for these protections will never go away.