The Contractor's Guide to Accounts Payable and Expense Management

Are Your AP Processes Slowing You Down? 

In today’s construction industry, time management is just as important as doing great work. But one of the most time-consuming tasks at hand is accounts payable (AP) for construction companies. When an essential task such as accounts payable takes up valuable time, many businesses view this as a loss of productivity.  

To some, traditional AP management seems like the more cost-effective option compared to spending thousands of dollars on unfamiliar technology. However, recent advancements in industry technology have made it possible for construction companies to save time and money with construction AP automation. 

But what is construction AP automation software? 

AP automation for construction is when a construction company implements accounting software that eliminates the need to manually enter and process construction accounts payable tasks. The software automates each step of the process, doing what used to take hours in just a few seconds. 

The Challenges Faced by Construction AP Professionals in Managing Expenses and Invoices 

If the quality of work is the heart of a construction company, then accounts payable is the lifeblood that keeps the heart pumping. On any given day, a construction AP professional is responsible for: 

• Tracking multiple jobs (and the cost overrun of those jobs) 
• Negotiating and paying vendors 
• Organizing and accurately tracking time sheets (not to mention keeping an eye out for fraudulent time punching activities—Did you know “buddy punching” costs US businesses hundreds of millions of dollars annually in payroll expenses? 
• Processing and getting approval for payroll 
• Answering payroll questions from both employees and leadership personnel  
• Ensuring data is always accurate and compliant with ever-evolving regulations 
• Tracking and ensuring customers make payments on time 

But one of the key (and most challenging) responsibilities is the first task on our list—tracking open jobs.  

Each job has its own vendors, employees, equipment, codes, and regulations that must be accounted for. Couple that with trying to manage cost overrun, and this task alone demands perfect accuracy and lots of time (when done manually). 

Did You Know? 

According to KPMGs 2023 Global Construction Survey, 83% of construction firms say their top priority is increasing the accuracy of estimating materials and equipment. 

The 4 BIG Problems with Manual AP Processes 

If there’s one thing that the construction industry understands, it’s the value of hard work by reliable hands. Sore backs and calloused hands are responsible for incredible feats of ingenuity at an even more incredible pace.  

But when it comes to the back-end side of a construction company, manual data entry can cause headaches and mistakes that cost you a lot of money. 

It’s time to delve into the four main challenges that AP professionals face every day with the inefficiency of traditional processes. 

1. Managing multiple job sites can get confusing  

The larger the organization, the more job sites there are to manage. Each job has its own vendors, equipment, and even self-performing contractors. That means AP teams have a lot to keep track of (and a higher risk of making mistakes). 

2. Inefficient AP disrupts effective communication 

With multiple job sites versus one AP department, or even possibly a single AP specialist, miscommunication and frustration can happen frequently. 

3. Slow approval causes frustration and possible missed payments  

Approving invoices takes a lot of time, and with company leaders constantly on the move, it can take even longer. This means a greater risk of delayed payments–which creates frustration and inconvenience for crucial vendors waiting for their invoices to get paid. 

4. Human errors are bound to happen–no matter how skilled the AP specialist 

One of the most infamous challenges of running a construction company is the need to meticulously adhere to (and stay ahead of) compliance regulations. Despite a specialist’s best effort, they’re people, not computers–and staring at a spreadsheet for hours on end can take its toll.  

But what is the actual cost of human error?  

• A 2018 study by Gartner revealed that “poor data quality” can cost US businesses $10 MILLION each year.  
• Another example comes from a Forbes article, where over half a million voters received inaccurate absentee applications because of a misaligned spreadsheet–which matched voters with their local registrar’s offices. 
• Even NASA addresses how manual processes can have major consequences in their report, “Human Reliability and the Cost of Doing Business,” where they discuss how almost $300 MILLION was accidentally transferred into a private account due to human error. 
  

 The Who’s Who in Construction AP 

The hard truth is that how you manage your accounting impacts more than just your revenue. The efficiency of your AP system has far-reaching consequences in every aspect of your business.  

Now we’ll explore the key stakeholders in your construction AP management–both internally and externally–who suffer the consequences when AP isn’t optimized. 

Internal Stakeholders 

• Your employees. According to the US Bureau of Labor, almost 12 million people were employed in the construction industry in 2022. That’s a lot of people depending on accurate and on-time payment. AP inefficiencies can cause delays and mistakes on paychecks–and even the most loyal workers will move on if they can’t trust payroll accuracy. In fact, 49% of American workers will leave a company after experiencing two issues with their paychecks (ASAP Payroll Service, 2021). 
• Your directors. Aside from the owner of the construction firm, larger companies may have directors who help develop business objectives and manage construction projects. Any inefficiency can directly inhibit their ability to plan and manage properly. 
• You (The Owner). Although it seems obvious, you’re the key stakeholder in your AP management strategy. Your processes ultimately determine the success of your business. According to the U.S. Bureau of Labor Statistics, only 37.6% of the 43,277 construction businesses that opened their doors in March 2011 survived 10 years later. 

External Stakeholders  

• Your Creditors. Credit makes the world go around, and creditors are the first stakeholders to hold you accountable for your accounting system. Many businesses rely on their credit score, and accurate and well-organized AP processes are crucial to optimal relationships with your creditors.  
• Your Suppliers. Your vendors are businesses just like yours. They provide the supplies you need to do your job (whether it’s equipment rentals or the paper you print invoices on), so maintaining strong relationships with vendors is invaluable. 
• Your Customers. Your AP process can also impact your customer experience, as sending confusing or inaccurate invoices or lacking a solid accounts receivable process can hurt your reputation with current and potential customers. 

7 Quick Wins to Improve Your AP Process Today 

Now that we’ve covered why it’s important, how it impacts stakeholders, and the biggest hurdles most construction companies overcome… It's time to take action toward optimizing your accounts payable construction processes.  

But before discussing tools and supporting resources, we’ve outlined seven best practices that every construction firm should follow. 

1. Maintain accuracy at all costs. The most important aspect of accounting is accuracy. Every digit, decimal, and date must be accurate to avoid late payments and frustration during tax season. No matter how large your construction company is, creating solid processes that everyone understands and follows will make it easier to integrate tools that lower the chance of human error. As we’ve said before, the right technology doesn’t eliminate human control. It fuels it. 
2. Ensure visibility of all financial activity.  With continuously evolving regulations and compliance to keep up with, construction companies need clarity on the actual profit vs loss. You must create processes that make tracking and analyzing revenue and expenditures easier so you stay in control of the financial process. 
3. Create a single system everyone follows. Nothing hurts efficiency and accuracy more than bottlenecks. They usually occur when there isn’t a single, mandated protocol that everyone (both in the field and the office) follows. That variability makes it much harder and slower for your accounts payable professional to track, organize, and execute the processes that keep your company going. Eliminate as much friction as possible by implementing one standard operating system.
4. Audit AP operations regularly. Optimization and efficiency rely on knowing your current processes inside and out. Even after introducing new protocols or construction AP automation software, you should regularly audit accounting processes to have the best chance of being one step ahead of potential problems.
5. Use industry-dedicated software. If you decide to use tools to optimize your construction AP process, ensure they are built specifically for the construction industry. There are several compliance standards and specific processes that uniquely apply to a construction company, so the software must account for them.
6. Hold everyone to a single standard. When you introduce a tool that optimizes workflow processes, everyone involved should participate. The minute one person doesn’t use the new tool, it can cause confusion and frustration. 
7. Ensure clear communication with vendors Like your staff workflow processes, it is equally important that you implement relevant and effective systems for managing vendors as well. This will enable you to ensure invoices are received, tracked, and organized on a reliable schedule. It will also improve the process, making it easier, more convenient, and more reliable for vendors to submit and communicate about their invoices. 

The Power of Automation in AP Optimization 

Implementing digital processes can eliminate hours of manual data entry and produce clear and reliable workflows throughout your organization. This drastically reduces the time and strain that manual AP demands of your accounting specialist. Plus, digital automation can execute accurate accounting and ensure everyone is paid on schedule–here’s how: 

• Automation lowers human error: Even though it feels risky to trust AP and payroll data to a computer, automation lowers the risk of error by over 60%! 
• Automation is the best and easiest way to optimize efficiency: The only thing that automation saves more than money… is time. But saving time is just another way to save money!  
• Faster workflows: With 24/7 digital touchpoints and mobile-compatible tools, field supervisors and AP specialists have their assigned points of entry and dedicated responsibility–which means fewer bottlenecks. 
• Faster approval timelines: Automation eliminates phone tag and back-and-forth approval processes by making it easy to notify whoever handles invoice approval and lets them review and approve from wherever they are. 
• Faster processing: From record keeping to scheduling payments, automation makes the entire accounts payable process much faster than manual data entry. A 2023 Ernst & Young study reported that US businesses spend an average of almost $5 per entry for manually entered HR tasks like payroll.  
• Automation makes it much easier to ensure timely payments and manage cash flow: With a single system throughout the AP ecosystem, construction companies can instantaneously track, organize, and generate accurate reports and invoices. Additionally, automation makes it easier to make payments and follow up about payments due to your company. 

3 Tips for Choosing the Right AP Software Solution 

When selecting an AP software solution for your construction company, here are a few things to consider. 

1. The current size of your organization and projected growth estimations. The construction industry is always evolving, so you’ll need software that offers flexibility as your company continues to grow.
2. The weakest links in your current AP process. Are you struggling with cost overruns? Is payroll a nightmare? Is it something else–or all the above? Once you know your weak points, it becomes much easier to identify the right software solution to solve them. 
3. Your team’s familiarity with the software. All construction ERP software should be user-friendly but be sure to assess your team’s current level of tech experience. This will let you know exactly how to introduce a new tool to your team and what level of support may be required.  

Bonus Tip: Prepare your team with education and training. Learning new processes and platforms takes time. Improve your turnaround time by providing effective training and access to educational resources to make the transition easier for your team. 

Your Construction AP Software Options 

Once you implement automation into your AP process, it can feel overwhelming to research all the ERP and accounting software options available to you. However, the most important thing to look for is construction-industry-specific software.  

To help you get the process started, we’ve identified three key contenders in the market, and highlighted some of the features that make them worth investigating. 

Sage Paperless Construction 

Sage is one of the most well-known (and oldest) ERP solutions on the market. While offering resource planning software for a multitude of industries, they’ve created Sage Paperless Construction, a trade-specific installment promising to “simplify process from project start to finish” with: 

• A monthly subscription-based pricing model 
• Automated routing and approval processes 

• On-premise and cloud solutions 

While its established reputation can be appealing, it’s important to remember that Sage’s size makes it harder to get ahold of timely support and means a much less personalized experience. Additionally, it only integrates with other Sage products. 

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AvidXchange (Formally TimberScan) 

Having acquired the well-established construction-industry-specific software, TimberScan in 2021, AvidXchange promises to streamline and centralize AP processes with features like: 

• Optical Character Recognition (OCR) invoice processing (via their “Smart Extraction” technology) 
• Easy Sage 300 CRE integration 
• Automated coding (also with their “Smart Extraction” technology) 
• Lien waiver management 

While favored by many for its user-friendliness and value for money, users also report problems with image distortion and compatibility issues–especially when the software updates.  

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hh2 Cloud Construction Back-office Software  

hh2's software solution offers the same features (plus some) and we do it better. For example, hh2’s Doc Flow offers an easy and accurate way to: 

• Acquire invoices and credit card receipts from anywhere 
• Code and route expenses to the right job and the right people 
• Enter that information into the all-in-one accounting system for processing and payment 

Along with a variety of solutions that adapt to all aspects of the AP ecosystem, hh2 is ideal for adapting… 

• To where your business is now, and where it’s going (scalability) 
• And supporting your current ERP solution (easy integration) 
• To your team’s tech-experience level with user-friendly processes and user interfaces 

Simplify how you manage your construction AP with hh2 

The nuance of compliance standards and the need for flexibility requires automated AP software specifically designed for the construction industry. Hh2 is a specially developed construction ERP management solution built by construction professionals for construction professionals.  

Whether you’re a general contractor, HVAC, or anything in between, our deep knowledge of your industry gives you a platform you can trust to keep your company compliant and organized. Here’s how: 

•  A user-friendly interface that works seamlessly on desktop and mobile devices 
• Invoice Scanning and OCR Scanning that make submitting field documents easy and secure 
• On-The-Go Invoicing and Receipt Capture so AP managers aren’t chasing project managers and employees around for expense reports 
• Intuitive and fully customizable workflows 
• The ability to integrate with preexisting accounting systems like Sage or Spectrum 
• Multiple automation processes for more than just paying invoices 

 An All-In-One Solution That Seamlessly Integrates with Your Current Stack 

hh2 supports every branch of the construction industry, including: 

• General Contractors 
• Subcontractor 
• Concrete Contractors 
• Electrical Contractors 
• Mechanical Contractors 

Our construction software integrates with most major Enterprise Resource Planning solutions: 

But does construction-specific ERP make a difference compared to more generalized alternatives? 

If all the reasons above haven’t convinced you, then we invite you to hear from real hh2 customers about how features like Data Drop, Document Flow, and beyond helped solve their construction accounts payable problems. 

"It's a great feeling to be able to recommend a product like hh2 that we've had very good success with. We love using it today and plan on using it in the future as we grow!" 

– Bryan Kelling | Controller | Metro Air Conditioning Company 

Construction Accounts Payable Automation Success Stories  

Data, stats, and scenarios help build a foundation of understanding the value of construction accounts payable automation, but actual real-life accounts from construction companies like yours bring everything to life. Check out these three case studies that show how automation can revolutionize your business–no matter the size. 

GW Peoples Contracting Co. Needed to Level Up its Invoicing Process  

Adam Lutz, Controller at GW Peoples Contracting Co, struggled with managing, approving, and tracking invoices. Here’s how hh2 helped revolutionize its process.  

Old Payroll Processes Were Haunting the Dreams of Hess Construction’s Accountant 

Lorraine Searcey, Accountant at Hess Construction, needed a better payroll system, “Entering payroll [manually] was a nightmare.” Watch her full story about how hh2 changed all that.  

Paper Invoices Cost Metro Air Conditioning Company Time and Money 

Brian Kelling, Controller at Metro Air Conditioning Company, hated the risks associated with dealing with paper invoices. They were slow to receive and slow to process. Here’s how hh2 helped his company make invoice processing smoother, faster, and easier. 

Take Your Construction AP to the Next Level 

We hope this guide helped voice the trials of construction AP management that you deal with every day, as well as introduced solutions and strategies that you can implement for a more peaceful and productive accounting workflow. 

From accuracy, organization, and compliance to faster and easier AP, an industry-specific, cloud-based solution can improve the efficacy of your business and the quality of life for everyone inside and outside of your organization. 

To learn more about any of the tips, strategies, stories, or features covered in this guide, visit hh2.com.  

Book a free demo with one of our hh2 AP experts today. We’re always here with exceptional software–and personalized support to help you achieve your short and long-term goals.