What is the Best Option to Pay for Construction Materials?
In the construction industry, there are several different payment options that material suppliers can offer to their customers. Some options to pay for construction materials are quick, simple and straightforward, while others prove to be complex and drawn-out. Additionally, the method offered by the supplier may vary depending on the cost of the materials, type of project (residential vs. commercial), and the supplier’s appetite for risk.
Each payment option comes with its own pros and cons, and it’s important that these get taken into consideration. Here’s a look into the 4 common payment ways to pay for construction materials that suppliers offer contractors, and 1 unique payment solution that suppliers should start considering:
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4 Ways for Contractors to Pay for Construction Materials
Cash on Delivery (COD)
This straightforward payment method allows the supplier to receive money upfront, in the form of cash, check, or electronic bank transfer. It is often recommended for contractors who have credit scores that are lower than average, have hit their credit limit, or have historically been slower to pay. COD really only provides one main benefit to suppliers – getting paid upfront, which eliminates the possibilities of not getting paid in a timely manner.
Despite its simplicity, COD has a couple of drawbacks. Many contractors are unwilling to choose this method to make material purchases for commercial projects due to a lack of access to ready cash.
Contractors with limited cash access may instead have the option to pay for construction materials via credit card. This method is, of course, only available to contractors with sufficient lines of credit. Similar to COD, credit cards can also prevent missed or delinquent payments since the choice of when to receive payment is entirely in the supplier’s hands.
While paying with a credit card can be a viable option for contractors with sufficient lines of credit and small purchases, there are a few disadvantages to both the supplier and contractor. On the supplier’s end, credit card information must be collected and stored for each purchase and profits decrease further as the supplier is forced to shoulder various transaction fees (with no added benefit to the contractor). On the contractor’s end, undesirable interest fees can start to eat into profits. Not to mention, credit cards are also the least secure of the available payment methods. Card theft, fraud, and unexpected chargebacks are obstacles which suppliers might encounter during the payment process.
Joint checks strike a middle ground regarding security. Suppliers can be confident that they will receive payment, but they won’t know exactly when that will be. Typically, the general contractor, subcontractor, and material supplier must all sign the agreement so that the supplier will be paid regardless of whether or not the subcontractor pays them. But the supplier otherwise lacks any control over the situation.
Joint check agreements are both complex and unstable. They require the cooperation of multiple parties, creating more “moving parts” than any other payment method. If the joint check does not cover the full amount owed to the supplier, they must file a mechanic’s lien, which can be time-consuming and requires additional paperwork.
Perhaps what’s most concerning about joint checks is the fact that there’s currently no law governing joint check agreements. Each agreement is an individual contract with unique, difficult-to-enforce terms. So, should an incorrect amount be paid, the burden of contesting it lies entirely on the supplier’s shoulders.
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In some cases, a supplier may offer their own terms to a contractor requiring an extended payment alternative for the construction materials. This typically consists of an agreement that the contractor will pay within 30 days (Net 30). If a contractor is reliable and consistently pays within the term, this can be a reliable method. However, if they do not, problems quickly arise.
Once again, the supplier inherits significant responsibility. They must track down contractors who fail to pay while attempting to enforce fees for going over terms. As discussed above, paperwork must be filed to retain the mechanic’s lien rights. Not to mention suppliers are forced to act as a bank and also monitor credit scores.
Billd is the only alternative payment method for contractors which reliably removes all insecurities for suppliers. Designed specifically for the construction industry, Billd works with both suppliers and contractors to provide terms agreeable to both sides. The contractor is offered a 120-day term and fees similar to a credit card, but without the risk of fraud or chargebacks. Plus, Billd carefully documents each step of the process, giving the supplier plenty of information to determine if the contractor is someone they wish to work with again in the future.
With Billd, the supplier controls the material ordering process, including when to receive payment – which is upfront from Billd on the contractor’s behalf. They can choose to offer contractors a payment free period with no risk of nonpayment on the contractor’s end. Regardless of the chosen period, credit approvals and materials funding are same-day!
Let Billd shoulder that responsibility and give yourself time to focus on seeking new projects and growing your business instead. Suppliers and contractors alike, contact Billd today to learn about the only payment solution designed just for the construction industry!