Cash flow is a decades-old problem in the construction industry. Payment delays are an especially prevalent issue, with a report from PYMNTS and American Express finding that they strain operations for over 97% of industry professionals. Late payments also comprise 12% of the average construction company’s annual costs, ultimately taking away from their profits. Fortunately, there’s a solution in sight: digital payments. More companies are looking to implement strategies that involve instant bank verifications and virtual cards to minimize delays.
Meanwhile, others are looking to more popular methods to ease cash flow. In particular, the subscription billing model is quickly gaining traction in the construction industry. Here’s what you need to know.
What is subscription billing?
Popularized by the likes of Netflix, the subscription billing model asks customers to pay lower prices on a recurring basis—usually monthly or yearly—rather than making a one-time purchase. Companies often use dedicated software to offer tiers or packages at different price points, which allows them to track revenue while still allowing customers to choose from and switch between subscription plans at any time.
What are its benefits?
Enhanced resource allocation
Construction companies that pay for subscription services can save money by using them to access specialized software and equipment—but only for as long as they’re needed. This kind of rental scheme can be more cost-effective than paying full price for tools that will only be used on a per-project basis. The affordability baked into subscription plans also means it’ll be easier for construction companies to invest in technology that can streamline their operations for specific endeavors. And though subscription billing may appear to only provide revenue in bits and pieces, construction companies that offer them can actually benefit from a steadier cash flow that guarantees workers and suppliers get paid on time.
Improved decision-making
Subscription models can help construction businesses become more aware of their finances and how to use them to cover both current and upcoming project costs. That’s because the tools that help companies offer multiple subscription plans can also provide insights for revenue management. Case in point, SOFTRAX’s subscription billing software can track all revenue coming from recurring payments. Yet it also provides updated, cross-system data and contract renewal features so users can view and manage not just their current revenue but funds they may receive from subscriptions in the future. Our post notes that can be especially vital given that project costs can add up when considering things like equipment, wages, permits, and materials—which is why it helps to use tools that can help predict the revenue from using subscription billing models and budget it in advance.
How is it used in the construction industry?
Software
Like other businesses, construction companies benefit from platforms that streamline processes like project management and accounting. They may also profit from using AI design software that can digitize past projects to outline plans for an existing one. Many of these tools are available via subscription, with industry-specific platforms like Contractor Foreman and Fieldwire offering subscription plans starting anywhere between $39 and $49.
Equipment
Purchasing equipment that will only be used seasonally—like wheel skid steers and enclosed cab machines for the winter—can be costly. Subscription services allow construction companies to rent these tools and only pay according to their usage. Major names like Toyota, Caterpillar, and Cramo now all offer such plans, bolstering the growth of the equipment rental market by nearly $28 billion within the first half of this decade alone.
Maintenance
Repairing equipment bought at full price can be costly, which is where maintenance subscription services can help construction companies be more proactive. These are often offered by the manufacturers of the equipment in question. Take Doosan’s Smart X-Care monitoring service: it looks over the DoosanCONNECT telematics system, where employees discern if specific subscribers have Doosan equipment that needs maintenance. Both the owner and dealer will then be notified about what needs to be fixed and what steps they can take to prevent further damage. Doosan’s offers this subscription plan for free in the first six months following a purchase, giving consumers more value for their money.
With cash flow a recurring issue in the construction industry, more companies are turning to digital solutions to address it. The subscription billing model—which is already used in everything from entertainment to healthcare—is proving that it can similarly improve payment and revenue management woes in this sector.
