Last week, Autodesk announced an agreement to acquire Payapps for “global payment and compliance management.” With this move, Autodesk matches up with its primary construction sector competitors, Oracle and Procore, both of which have made similar acquisitions over the past several years to get into the workflows associated with managing payments between general contractors and subcontractors.
With many steps such as the “pencil draw” and multiple parties involved, payment management in construction is a complicated and historically very manual set of processes. The possibility of streamlining that process to increase the opportunity for construction companies to get paid faster is, particularly in a higher interest environment, an alluring feature set opportunity for many reasons. Beyond simplifying and speeding the payment process, the move to get deeper into fintech in construction coupled with the promise of even more powerful AI-enabled analytics for risk management tees up a competition that could go well beyond the major industry-focused construction tech companies.
Payment Management is a Potent Gateway to Drawing Subcontractors to a Platform
For every general contractor in the market, there are dozens of subcontractors. So if tech companies are looking to acquire more customers in the construction industry at a high rate, at a certain point, they need to move beyond big general contractors and begin to penetrate the subcontractor market. Since, unlike many construction managers and general contractors, subcontractors generally have to make payroll for craftspeople and pay suppliers for materials before they get paid for their work, cash flow is much more important to them than to construction managers. The ability to help subcontractors improve cash flow seems like a compelling selling point. Again, higher interest rates and a tougher lending environment make this opportunity even more compelling.
Big General Contractors See a Way To Turn Software into a Money Maker
Textura was probably the first software company specifically designed to manage payments for construction contractors. The company went public in 2013, construction’s first pure play IPO in the United States, and shortly thereafter, in 2014, announced a partnership with Greensill Capital and Turner Construction, not just to streamline the payment process, but to enable general contractors and construction managers to pay subcontractors before the general contractor or construction manager got paid by their customer - a major shift in paradigms for the industry. Soon after, Oracle purchased Textura for $663 million. Not only could subcontractors get paid much more quickly, but, by providing interim financing for those payments, general contractors like Turner could actually make money on the transactions.
With better information and processes and better management of payment risk from its customers, software could enable general contractors to take on owner payment risks, something they have historically been reluctant to do, and make money on accepting that risk. In a world where margins are razor thin on billions of dollars in payments, particularly in a higher interest rate environment, this could be a highly impactful line of business for construction managers, turning software from a cost center to a profit center.
From Lein Management to Financial Giant for a $13 Trillion Market: Introducing ProcorePay!
Back in October of 2023, Procore introduced its own Payment Management workflows. Already gaining dominance in project management systems for the industry, adding payment management extends Procore's reach deeper into its client’s accounting systems and one step closer to becoming a true ERP for the industry.
Potentially, though, there is even more to the story for the industry’s newest multi-billion dollar technology provider. Building on its 2021 acquisition of Levelset, after the close of the acquisition, Procore CEO Tooey Courtmanche, Jr. finished Procore’s Q4 earnings call with a telling comment:
“The way we're looking at 2022 is that we're building the foundation for these fintech businesses around creating risk profiles that allow us to better identify how we can do things around, let's say, material financing, which is one of the areas where we're interested in looking and we're pursuing…And then on the insurance side, all of this is related to risk…So all of the things that we're working on now are building this foundation.”
The key question is who will benefit from the data and analytics opportunity in this ongoing effort to digitize and streamline the payment process in construction? In a business environment where money costs more for all parties and where risks can be better managed through better access to meaningful data, it seems likely that the big focus on payment management also foreshadows an effort to drive a strategic realignment between banks, title companies, insurance companies, owners, contractors, suppliers, and tech companies. In the process, that may unlock billions of dollars in new value from the trillions flowing through the construction sector, and also realign which companies are best positioned to capture their share of that value.