Subcontractors are an important part of any construction project. They help get the job done, and once you find subcontractors you can trust for specific types of projects, you might use them for similar projects in the future. To make sure your top subcontractors continue to work with your construction company, you need to pay them accurately and on time—and a bill payment platform can help you save time sending those payments out.
What is a subcontractor?
A subcontractor is a person or company that a general contractor hires to do a specific part of a construction project. Common examples of subcontractors in the construction industry include electricians, plumbers, and roofers. Each of these specializes in a specific type of construction that is required to complete the overall project, and the general contractor who hired them is responsible for paying them based on mutual terms.
The challenges of subcontractor payments
Finding good subcontractors is challenging, but paying them doesn’t need to be. There are bill payment platforms that offer plenty of payment options that make sense for subcontractors. Some tools allow you to record the time and type of payment, along with what the payment is earmarked for if it’s going to be distributed to a vendor or another subcontractor.
Making accurate payments can get more complex on larger projects where you use multiple subcontractors. It’s always nice to get everyone on the same payment cycle, but that rarely happens. Subcontractors are needed at different phases of the job, and each has their own payment requirements. Some subcontractors may require a certain amount upfront just to take the job.
Common payment term options
Since subcontractors are independent companies and not employees, they provide your company with an invoice that clearly defines payment terms. Those terms should be negotiated ahead of time and logged into your bill payment platform. Here are some common examples of payment terms:
- Percentage down payment: Many subcontractors require a down payment so they can buy the materials and supplies they need to do the job. Invoices for a down payment will usually say “due upon receipt.”
- Net 30: When you give someone 30 days to pay you, that’s called “net 30 terms.” Subcontractors who have done business with you before might offer you these terms.
- Net 60: Allowing someone to pay you 60 days after the job is done is an incredibly trusting act in the construction industry. Take advantage of those terms if you get them.
- Pay-when-paid: “When I get paid, you’ll get paid.” That’s fairly common in construction circles. When the general contractor gets the money from the client, the subcontractor gets their share.
Understanding W9s and 1099s
If you hire subcontractors, the two tax forms you need to be familiar with are the W9 form and the 1099 form. The W9 is a document the subcontractor fills out at the beginning of the relationship to give you their tax information, either an EIN or social security number. The 1099 form is the form you fill out at the end of the year showing how much the subcontractor was paid. They can use the 1099 to file their own income taxes.
The benefits of using bill pay tools for subcontractor payments
Using online bill pay tools to manage subcontractor payments saves time and reduces manual errors. Some payment platforms also automate recurring payments, track expenses, and offer payment methods that help increase cash flow while you’re waiting to be paid. Finding ways to have more cash on hand is critical, especially when prices and interest rates continue to rise.
Managing subcontractor payments with online bill pay
The first task after signing up for online bill pay is to enter all your subcontractors’ and vendors’ payment information. The best bill payment tools allow you to sync with your accounting software, so you don’t need to manually enter payee information to pay your bills.
You should also be able to upload bills and have your payment platform digitize the bill info for you. Then, you can save time by automating payments where appropriate and scheduling payments for any outstanding invoices. You can also encourage subcontractors to use electronic invoicing going forward.
Choosing the right bill pay platform
When it comes to the construction industry, the obvious features you’ll need in a bill payment platform are automated bill payments, electronic invoicing, and expense tracking. You’ll also want to look for a bill pay tool that integrates with your accounting software. The ability to track and categorize expenses can help your business control costs and outbid your competitors.
Does your current bill pay platform allow you to set up approval workflows for employees to submit bill payments? That function can make your life a whole lot easier, especially if you’re running a construction company with projects in multiple locations. By empowering your team to submit payments for your approval, you can save time paying subcontractors and vendors and focus on completing jobs and growing your business.