How construction businesses are automating collections to get paid faster & save time in 2021

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Experts in this webinar

Matt Shanahan
Matt Shanahan

Would you be surprised to hear that cash flow and AR collections strains for construction businesses are increasing on average in 2021? 

Join this live discussion to hear tips to stay ahead of the curve from Lockstep, an award-winning AR collection automation innovator, based on insights from their 2021 AR report and our 2021 Cash Flow & Payment Report.

Find out:

  • How is the construction industry faring today with cash flow and payments? 
  • What is AR automation and how can you increase working capital, reduce DSO and improve cash flow? 
  • How did the pandemic impact collection rates, business cash flow, and shape essential payment practices for the construction industry?

Transcript

Marissa Minter (00:03):
I’m really excited to talk to you this afternoon about how construction businesses are automating collections to get paid faster and save time and 2021 today’s webinars presented by a Levelset and lockstep. Um, just so you know, this live webinar is being recorded and you will receive a link to the recording within a day or two after the webinar, as well as more information about both levels set and walk step. Um, if you have any questions during the webinar, go ahead and enter those into the chat box and we will get to those questions at the end of the presentation. Um, my name is Marissa Minter. I’m on the marketing team here at Levelset. Um, if you signed up originally, the speaker for today was supposed to be Johnny affinity, but he did have some technical difficulties. So I am jumping in, in his place. I’m super excited to be here and talk to you guys about Levelset and about cashflow and industry and how we solve some of those problems are on cashflow. I’m also on the webinar today. Matt, would you like to talk a little bit more about yourself and about lockstep?

Matt Shanahan (03:22):
Yes. So my name’s Matt Shanahan, I’m the co-founder of the company called lockstep. Um, we’re on a mission to help accounting departments work better together. And in particular, one of our solutions that we have is called lockstep collects and provides counts receivable automation, uh, for, you know, your industry as well as others. Uh, it’s a product that was built by accounting professionals for accounting professionals. And we’ll talk, we’ll go into more depth about its functionality later, but on average, we deliver a 20 times ROI. So the investment’s really good on that. We serve a lot of great brands. We have over 250 customers now, and you can see some of them here. We’re also, uh, the leaders in enterprise financial systems integration. So we integrate with your accounting system or your construction management system to be able to take all the different data required for the collections process and then automate the actual collections activities around that. And if you don’t see your integration here, um, we can deliver it as quickly as possible. So, you know, we are building new integrations all the time.

Marissa Minter (04:40):
Yes. Awesome. Thanks for sharing Matt. Um, and just to give a little overview on Levelset as well, Levelset, basically exists to help contractors and suppliers get paid. Um, we have lien rights management, software, legal services, materials, financing, and all sorts of solutions that help speed up the payment process and make sure that essentially those in the construction industry get paid for the work that they’re doing. Um, so that’s Levelset. So to launch things off today, first, like to just start off by talking about the state of cashflow in the construction industry. So if you’re on this webinar, you are probably very well aware that there are so many issues around payments in this industry. Earlier this year, Levelset conducted a survey of over 700 construction businesses just to get their insights around cashflow problems and payment practices. Um, in this survey, we, um, got results from general contractors, subcontractors suppliers, the people who responded were anywhere from business owners to, um, office administrators, credit managers and businesses of all sizes.

Marissa Minter (05:45):
And the, one of the biggest statistics that came out of this, um, that was in the most overwhelming majority was that 97% of people who completed the survey said that they experienced stress around slow payments. This is definitely a big issue in the industry, and this is really, it’s not news to anyone. Um, and so what we’re finding, it’s just that it’s getting harder to get paid on time. The number of companies reporting that they get paid on time is just been declining year over year. Um, only 9% of construction businesses say that they only get paid on time, which is blows my mind. Um, that’s down from 61% in 2019 and 43% in 2020. Um, if you work on residential projects or you’re a smaller business, you might not see numbers as, you know, your numbers as God, but it’s definitely still an issue for everyone.

Marissa Minter (06:34):
And we’re also seeing that it’s harder to, um, collect payment in full, um, only 11% of construction businesses say they always get paid in full. Um, and that’s without, you know, customers withholding payment or back charges. This number is also steadily declining. Um, it has dropped 82%, um, from 2019. So definitely pay payments. It’s definitely an issue in the construction industry. Um, but there are factors that can speed up payment. Those who completed the survey, 44, 40 6% of those who completed the survey said that good communication with customers can speed up payment. So this looks like just opening up those lines of communication, showing that you were on a job, what you did on the job when you were on the job, primarily through sending notices at the beginning of the job. And also it’s like setting clear expectations about the work that you did.

Marissa Minter (07:23):
Um, easy invoicing and paperwork processes is another thing that can speed up payment. Obviously, if it’s easier to send out that lien rights, paperwork and invoices, that’s gonna move things along faster. Um, another factor, um, in the survey was, uh, choosing the right jobs to work on. Obviously, if you are working on jobs with contractors who have a history of paying on time, you can depend on, um, you can depend on getting paid faster and then a high quality of work, the better quality of work you provide, the more likely you are to get paid and get paid on time. And so Levelset helps with a lot of these things around speeding up payments. So when we talk about sending notices, even if you’re not required to send a notice at the beginning of your job, this can really help with speeding up payment.

Marissa Minter (08:08):
Um, some people get nervous that they’ll, you know, upset a customer. They send a notice, they think, you know, oh, they’re gonna think I’m going to file a lien, but really it’s just a standard business practice that lets people know you were on the job and Levelset helps by, um, in the software. You will get notifications and alerts when those notice deadlines are coming up, because of course, um, those required notices have deadlines by which she need to send them. Um, we also make it super easy for you to send those notices and lien waivers as well in bulk, but automating the process, any jobs that you intern Levelset, you can have those notices automatically sent out with just a click to approve. Um, another thing we help out with in automating this process is making sure that all of your paperwork has the right information.

Marissa Minter (08:51):
Our job research feature allows you to confirm and verify job details such as the property, um, legal property description and the property owner to make sure that one, your paperwork is going to the right people and two, that it has the right information, so that it’s always accurate. So many of our customers have found that, you know, in the past they would spend so much time, you know, digging around and trying to find these details or depending on their sales teams to find this information and Levelset like you see in this quote on the screen can really do the legwork to find these details for you. Um, maybe you already had some information included, but we can go back and confirm that it’s correct, or maybe you couldn’t find it at all. And we can go and do the hard work of finding, finding those job details for you to make sure your paperwork gets out on time with the right information.

Marissa Minter (09:37):
Um, and so going back to the survey and back to communication, more and more businesses are communicating about payment. And the survey we found that more than half of all construction companies are sitting preliminary notices on every project. That if you just go ahead and send in, notice on a project, you’re not going to be worried later on whether or not you’ll be able to file a lien, which comes to this next step that says almost three out of four companies survey have filed a mechanics lien. Again, this is another thing that kind of sounds scary to people, but in truth, filing a lien is one of the most powerful ways to collect payment and people aren’t getting paid. Um, and actually another stat it’s not here on this slide, but I believe around 60% of general contractors said they would actually support sub tier contractors and suppliers who made the decision to file a lien because they understand that you should get paid for the work that your own. And you’re going to take the steps that you need in order to get payment. Um, so it’s becoming more and more common for businesses to protect their lien rights, communicate openly to help the flow of cash and speed up payments. Um, and I’m going to stop sharing here and let Matt take it over from here.

Matt Shanahan (10:54):
Well, it’s wonderful to, to spend some time with you today to talk about how to actually automate the entire collections process, um, and to get started, what we thought we would do is take a quick poll. Um, it’s one of the things we’d like to do just to find out how people are doing collections today. And the poll question we have is, you know, for the collections process, are you using outlook, maybe Gmail and Excel or a spreadsheet for your collections process? If you could give us a response on that, the great we’ll give a another 30 seconds or so get as many boats, 10 vote early. You can’t vote often though. So, all right, Justin, let us know when we should end the pull,

Speaker 4 (12:04):
Keep it another 10 seconds here. So got almost everybody.

Matt Shanahan (12:21):
So it looks as though the majority of people are still using outlook and Excel. So 60%, um, 20% said they have an automation tool and then, uh, 20% said they were doing something that was customized to their own. So thank you for sharing that information. That’s, uh, that’s exactly what we see. We see the majority of organizations do something like the spreadsheet you’re looking at here. It’s a very manual accounts receivable process. You know, you get up, you know, maybe on Monday at the start of the week, you run an aging report, you export that aging report into a spreadsheet. And from there you track all of the collections activities for the week. You organize it, maybe from your biggest debtors, uh, and in terms of how you’re going to, uh, collect from them, make some notes in there, color coded to track status. The challenge with that is it’s all highly manual.

Matt Shanahan (13:16):
Um, and a lot of the data’s missing, you know, contact data. Isn’t in the accounting system. You haven’t maybe stuck in your outlook system. Um, there’s a lot of one-off emails. There’s no automated email generation. So you don’t have a template that will populate all the fields and fill that out for you. Um, this means that it decreases your cashflow, right? Because you’re, you’re not these number one thing that can impact your cashflow is the number of activities you complete with your customers. And so if you’re doing manual activities rather than automated one, you’re actually lowering the amount of cash that you’re going to bring in. And so this is really the big challenge with a manual AR process. Now we provide a solution that’s called accounts receivable automation, and what that is, it’s a cloud-based solution. It integrates directly with your accounting system to streamline and simplify all the activities around collections.

Matt Shanahan (14:15):
There’s five key features in there. One is automated communications. We’ll talk about that. The other is customer self service, the ability for your customers to gain access to their accounts, online collections, activity management, which is really the workflow for whoever’s doing the collection to know what’s the next best thing to focus on. And so rather than having to create a, to do list yourself and manage that the system can automatically create that to-do list cash application is the ability to post any payments that have been made back into your accounting system. So you don’t have to manually deal with remittance and then there’s forecasting and reporting. So you can look into the future of what that cashflow is going to be. And talk about kind of where, you know, are you performing well now here’s how AR automation works, because it’s really important to understand the basics of it.

Matt Shanahan (15:11):
As we talked about lockstep directly integrates with your counting system, and it also integrates with your CRM. So it can bring over critical information about the contacts that might be in your CRM. That AR data is brought over things like who are your customers? Who are the contacts? What invoices are there credit memos that have payments gone through? All of that information is brought over into the accounts receivable data layer. On top of that, there’s a rules engine that we call AR sequencing. So this rules engine looks at the aging of an invoice and then decides to be able to make certain take certain actions. So for instance, if something’s coming due, it might send it a coming due reminder. And then as soon as it’s passed to, it says that it’s late. So it’s able to trigger off these communications that go out to the customer in an automated way.

Matt Shanahan (16:08):
And those can be sent by email. They can also be sent by a text and they go to the customer to encourage them to come online. So that customer self-service where they can access their account and make a payment. So in a perfect world, this is a hundred percent automated. It’s really on autopilot. You have this ability to really do collections in a way that, um, you haven’t been able to do before. And as indicated earlier in the presentation, timely communications to the right person at the right time is one of the key things driving collections success. Now customers may have an issue. There might be a dispute. There could be some, um, they’re not being paid on time, so they’re holding up payments, et cetera. And the rules engine will detect that and be able to create an activity and assign it to somebody to go resolve with the dissolve the issue with the customer. And so that’s how the system works. These, these top kind of functions of automated communications, customer self-service and activity management working on top of these business rules can really help you scale up and improve your collections.

Matt Shanahan (17:25):
Now, I want to give you some proof points on that. So just as, uh, Rissa had indicated, we, we actually track for every one of our customers, how they’ve performed based on turning on this functionality. And what’s interesting is so we, we benchmark and take a snapshot of the customers, uh, before they go live on our system. And then we track over time how different functionality has improved, what they’ve been able to do from a collection standpoint. And our benchmarks have shown that for instance, before you automate customer communication, the average days delinquent was 39 days. I turning on automated communications that dropped to 18 days on average, that’s an improvement of 53, almost 54%, you know, in terms of lowering in the DSO and accelerating in your cash. So that’s an important aspect to think about it. You know, just turning on automated communication means your customers are aware that you’re aware. And when customers are aware that you’re aware every single one of them knows their exact status, and you’re telling them that they respond much faster to it.

Matt Shanahan (18:42):
The second benchmark I want to share is customer self-service. So we were looking at how many people are, how many companies are accepting payments online. Uh, and then we measure again the before and after once they turn the online payments, how does that improve what’s going on? And what you see here is before online payments was turned on. So that customer self-service, you know, the past due percentage was 24% of the invoice invoices passed to with an average days, delinquent of 24 days. As soon as it’s turned on, it immediately dropped down to 16%. And the average days delinquent to 10. Now there’s a couple of reasons for this. I mean, think about it in, you know, kind of our, our world of remote work today and everything that’s gone on. Paper checks has become harder for people to do, and they may not have an automated payment system on their side.

Matt Shanahan (19:37):
So their AP doesn’t have that. On the other hand, if you’re able to send them a link to a place where they can make an online payment right away, that’s actually saving them a lot of time and a lot of hassle, and it’s a very convenient way for them to pay. So that’s why we see these kinds of changes when you make it easy for customers to pay, they, they want to do that. And your real business customers do want to pay on time if they can. You know, that is their goal. Remember that every accounts payable department has to close their books, too. Right? They’ve got to, they’ve got an end of month close. They’ve got to be audited. They’ve got to run a controlled process. So the easier you can make it for them to pay you the easy, the faster you’ll collect your cash.

Matt Shanahan (20:27):
This last benchmark we’ll look at it’s really around activity management. So we talked a little bit about the, the fact that a fully automated solution. So those automated communication is better than one that’s manual. So we were kind of looking at what percentage of the activities that were people doing are manual versus automated. And what we found was you always want a blend because ultimately accounts receivable is still a customer relationship role. It is all about the customer and being aware of your customer situation. Having the right outreach at the right time will have a dramatic impact. Um, the most frequent thing we hear from our customers is the people who are nice and that are easy to work with, always get paid first. And so thinking about how do I blend in the right automation with the right human touch, ultimately will drive really good results in your collections activities and your, and lower your PSO.

Matt Shanahan (21:35):
So those are some of the benchmarks that, you know, when we look at, you know, how do companies improve? And it has these benefits, first of all, it increases your working capital every day that you lower your DSO is like taking a day of sales and depositing it straight into the bank. And so you can immediately increase your bank balance by doing these techniques. You also get more cash flow from operations as a result of those, you know, being able to have the cash on hand, it frees up a massive amount of staff time. So we talked about all those manual activities, by the way, they’re not only manual, but they’re also very menial. Um, most people don’t enjoy doing it. Um, so, you know, finding a way that you can actually get rid of the menial tasks so you can focus on the customer relationship.

Matt Shanahan (22:24):
It’s a much more fulfilling role, and it’s a much more productive one, ultimately, because it’s all goes to the bottom line, you’re increasing shareholder value. And when you look across these different aspects on average, there’s a 20, uh, uh, return on investment at 20 times. So you’re going to get back 20 times more than the investment in the AR automation itself. No, I’ll share a couple of examples. Um, you know, EFT associates is one of our customers. Um, as a result of using AR automation, they were able to get 243,000 more, yeah, $243,000 of cash in their bank account. They increased their working capital by that, and they’re saving over 1300 hours a year. So it’s not, you know, full head count, uh, the way to think about that and the other one, Brendan it $1.8 million in cash that they were able to accelerate. And again, in 19,000 hours saves, those are again, very meaningful things to the business.

Matt Shanahan (23:29):
Especially as you think about scaling in the case of Brennan, they’ve been able to really grow their business without having to do a bunch of hiring behind that. And that’s what automation is able to do. And then there’s a company called M spec that brought in over $10 million. You’re saving over 10,000 hours a year. Um, so that $10 million in cash is, you know, a nice ad and then being able to save 10,000 hours of time every year is also a big one. What was interesting here? You’ll notice the quote from the M spec manager, that there was a lot of turnover of employees prior to using AR automation. And since it’s been turned on, not a single employee has left, they’ve been able to retain the team. The team is excited about what they do. Um, as it says, here, they look forward to the blast going out and that’s because they get to engage customers, you know, in, in meaningful conversations and be able to build those relationships.

Matt Shanahan (24:37):
I hope you found the, kind of the overview instructional. Um, there is, there’s a reason to do this. This there’s a very hard tangible ROI, and it brings a lot of scale to your business. So we will open it up, Matt. So any questions you might have now, one question, it just came in as, you know, how long does it take to implement AR automation? What we’ve seen is you can immediately get benefit in the first 60 days, you know, so that’s one of the things that we’ve seen is this ability to improve your cash flow very, very quickly. So it’s an easy extension to your, um, accounting package today.

Marissa Minter (25:44):
Yeah. And if, if I could jump in as well on the, on the Levelset side of things, um, yeah, when you’re starting to use automation or a new solution, um, you know, it can always be difficult for teams to start using a new, new kind of software. Um, but like at levels that we have training and onboarding to kind of help your teams, um, get used to using a new software solution, hold their hand through the process, um, and make sure that you really have your teams really have an understanding of, of how the software works and how it can make their job easier.

Matt Shanahan (26:17):
Uh, another question came in, great question. Is there an AP solution for contractors? Um, interestingly enough, uh, we were working with somebody on an AP solution. So, you know, we’d be happy to follow up with you if you’re interested. Um, so we’ll, we’ll reach out and, um, let you know what we’re doing and see if you would have an interest in that.

Marissa Minter (26:42):
Once again, jumping in on the Levelset side of, we are mostly for accounts receivable, but also on the accounts payable side, if you are, um, requesting waivers, um, we do have a waiver management and our software as well, so that you can easily have your customers. Um, you can send out a link to your customers and have them easily send you a waiver so that you can send off that receipt of payment.

Matt Shanahan (27:11):
Uh, another good question are the online pay portals web-based or part of the lockstep software, the access. So it’s all web based. So the ability to go online or the customer to see their account as a hundred percent web based, and it’s also passwordless access. What that means is customers receive a magic link and they, that magic link is like a secure one-time password. It allows them to see their account without actually having to know a password. So it’s very convenient for them. Um, and so they’re able to go in, you know, look at their account, pay any invoices they want, um, and there’s other, um, actions that they can take there as well.

Marissa Minter (27:56):
And I’m going to jump in as well. I know that that question was directed towards, um, the lockstep software, but also with Levelset. Um, we recently added payment processing links to certain documents. So if you’re sending a payment demand letter or a payment reminder through Levelset, um, there is a link that allows your customers to be able to, to pay on my, if you’re sending one of those specific documents,

Matt Shanahan (28:30):
There’s a question about showing the list of software that we connect with to do that. All right. So this is the partial list that we currently have. As I mentioned, if you don’t see yours on here, we’re able to typically add a new one within two to four weeks. We’re constantly expanding this list.

Marissa Minter (29:01):
Awesome. Yeah. And Levelset does work with quite a few, um, or integrate with quite a few software solutions as well, such as, um, QuickBooks, um, pro core and other construction software accounting pro platforms. I don’t have a, a pretty pretty slide list logos for you guys. Well, awesome. I guess. Yeah, if there aren’t any more questions. Um, thank you all so much for attending today’s webinar. If you do think of any questions after webinar, not a problem at all, we will be sending out an email later on that has a link to the recording and contact information so that you can reach out and request more information from that at lockstep and from the Levelset team. Um, really again, once again, really appreciate you all joining us today. I hope that you, um, learned a lot about automating collections to help better manage your cashflow. And thank you for being here.