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Fighting Slow Payment in Construction: 5 Cash Management Tips

On average, it takes over 70 days to get paid, and 52% of contractors aren’t even paid in full. We don’t think this is right, so we want you to get paid quicker with proper cash management.

Watch this webinar to:

  • Learn what causes slow payments
  • Avoid costly fund allocation mistakes
  • Implement effective risk mitigation techniques

Full Transcript

Michael:
I’d like to thank everyone for joining this webinar today, fighting slow payment in construction: cash management and risk mitigation. If you could go to the next slide, I’m going to go and introduce some of the, the agenda today and the, our presenters on the call. So we’re going to be talking about a really, a really good topic, especially for right now. I’m going to go through the introductions of everyone here in a second, but just to go through the agenda, we’re going to be talking about construction payments and how to allocate funds in construction. Some of the challenges around getting paid in construction. And then we’re going to have some time about 15 minutes at the end, after the 30 minutes for the presentation, for those in the audience to ask some questions and answers. So you can, you can type in and chat some questions throughout. And if they’re relevant to what we’re talking about, I may stop and answer some of your questions. So please feel free to, to send in your questions using the chat feature below. So without further ado, I’d like to introduce our hosts at FK construction funding. We have Frank Skelly and Scott Burgener and they have a really fun topic here. So I’d like to kick it over to them. Thanks guys for hosting. And again, thanks for everyone for attending the session today.

Scott:
Yeah, thanks, Michael. Next slide Pierce, because so as Mike said, I’m Scott Burgener, the director of project controls here at FK construction funding. We are a cash management funds control risk mitigation, company funding construction, commercial construction projects for really anybody involved top to bottom the project. We have a solution risk solution for your owner, GC banks, lenders, subcontractors kind of put all the pieces together. With me here, I have a managing director, Frank Skelly, Frank.

Frank:
Yup. Hey Scott, thank you, Michael. Yeah, we’ve, we’ve tried to you know, come up with a solution that we believe addresses. We believe this is a multifaceted problem in the industry that we’ve tried to address in the last 10 years. So, Michael, did you, did you want to introduce 葫芦影业APP?

Michael:
Yeah. Yeah. Thanks. so for those of you who aren’t familiar with, levelset quite simply levelset is here to help you get paid. We remove a lot of the stress from managing payments and construction, which Scott and Frank are gonna really speak to some of those challenges here in a second, but levelset has a lot of free resources an expert center where you can ask questions to construction payment experts like the guys on the call for free, contractor profiles, free resources, and a lot of things. So visit levelset.com to learn, learn more about levelset if if you’re not already familiar.

Frank:
Okay. So as I mentioned a minute ago, you know, we, we believe that this is a multifaceted issue. You know, certainly cash flow is, is the elephant in the room. That’s the sort of issue that everybody’s familiar with when they think of you know, trouble getting paid or paying their suppliers, or, you know, it’s the cash flow issues that are, that are sort of infamous in the commercial construction industry. But we believe that the reason that there has not been a solution put forth, you know, in this trillion dollar industry is because there, there are a couple of facets that we believe have to be addressed. And we believe that if they all have to be addressed together certainly as I said, cash flow is the one that’s maybe the biggest one or the most significant one is the one that everybody’s familiar with.

Frank:
But there’s also allocation of funds, right. Or funds control. We believe that that’s a key component as well. Right. you know, you’ve got a billing process and the commercial construction industry that’s monthly you combine that with paying retainage and, you know, 60 days plus or minus to get paid, you then have a transparency issue, right? You’ve got risk and liability that, you know, is every concern. Every owner’s concern, every general contractor’s concerned about that. And you’ve also got, you know, the risk of project delays, right? So particularly the owners and of course the general contractors are concerned about that. You know, delays, kill profits and they often destroy relationships sadly. So we believe that there’s a need to solve the cashflow problem in conjunction with the allocation of funds in order. In other words, making sure that everybody on the project is paid or there’s complete transparency.

Frank:
We also believe that there needs to be a monitoring component to ensure compliance, right, to make sure that the, the you know, the right documents you’re getting to the right people licenses are intact, insurances in place. Workers’ comp is in place, et cetera. And of course, you know, the, the main issue on everybody’s mind at the end of the day is really risk mitigation, right? That’s everybody’s goal especially now in these trying times with COVID and this you know, the, the, the madness that we’ve all seen around the country over the, over the last week it’s, it’s particularly important that you know, that, that people address the risk mitigation issue, right. Lenders are pulling out of projects. There’s, they’re pulling the rug out from under general contractors, of course, suppliers and subs are more concerned than ever that if they proceed or they will, they move forward.

Frank:
And if they’re going to get paid, or if the project isn’t going to be shelved, sort of halfway through it. So again, we, we believe a solution needs to address all parties. You know, the owners, the lenders, the general contractors, and the substance suppliers equally. If, if, if we address the cashflow issue, the funds control issue, monitoring, compliance, and risk mitigation, we believe that that’s the key to project success. And, and as a result, project, success is also gonna come from everybody being paid, making sure that everybody gets what they’re supposed to get. And of course you know, levelset plays a large role in that, that part of the solution. So you know, this risk mitigation is everybody’s business. And I think you know, I believe we we’ve come up with, with we’ve tried to address all the components that we believe are necessary to have a successful project. And I guess at this point we can I don’t know if you have anything to add Scott, or we can start going into the, the more particulars we’re going to go through each uh…

Scott:
I mean, I think you said it correctly, when you know, everybody, you can talk in construction about cashflow to anybody. Everybody’s going to understand that piece of it. I think it’s the underlying the components that aren’t being addressed all altogether for a solution there’s individual pieces that are fixes, but there’s not a solution unless everything is brought together, the, the monitoring, the risk mitigation, certainly the allocation of funds. So I think those things all play a key part in that cash flow that everybody’s so well aware about, so,

Frank:
Right, right. Agreed. Agreed. So look, on the cashflow side, we have some of the obvious things we’ve got, you know, 60 days to get paid. We’ve got this you know, sort of infamous pay when paid or even paid if paid a component that’s, you know exists in most contracts between subcontractors and in general contractors. And, you know, the challenge here is, is, you know, there are plenty of funding solutions, but unfortunately the reason we have this big issue is because most of them are not a good fit, right? I mean, there’s plenty of money you know, out there and, and, you know, banks and investors, or what have you everybody’s looking for a return on their capital. So if there was a solution out there that was sort of a ready fit, I think it would already be addressed.

Frank:
You know, we can go through a couple of them. We’ve got you know, we’ve got banks, the problems, the problem with banks is that they’re typically going to look at the past, right? So if a subcontractor is doing, you know, a million dollars a year and has the opportunity to do two or $3 million a bank is, is typically going to land on what that company has done in the past. And of course, you know, your personal credit and collateral and assets, of course play a big role in typical bank loans as well. You know, there’s some other avenues you can, you can borrow from friends and family or you know, fund your growth on your credit cards, or even take an MCA loan. But none of these things are really sustainable. And, and I think that’s, that’s been the problem in the industry, right?

Frank:
You’ve got this long payment cycle, 60 days plus or minus. You’ve got a large percentage of subs, as you can see up on the, on the screen now that are not being paid a full almost half of over half of subs are claiming in recent surveys to not have been paid in full on recently completed projects. And it’s really limiting their opportunity to grow, right. If there was a, a capital solution out there that would allow particularly subcontractors to take on more projects, it would it would, it would certainly help them grow and help them be more successful. So we believe it, you know, the cash flow issue is limiting their opportunities. And in addition to creating a lot of additional risk for all the parties really involved, right. You know, the typical sub that’s maybe doing a million dollars a year in sales, but, you know, let’s just say they’re billing a hundred thousand a month.

Frank:
And you know, they have to have enough capital to carry about 90 days worth, right? So if they’re a typical sort of 20% gross margins maybe five or 6% net margins you know, they, they’ve got to carry roughly 90 days. So, so they’re going to have to have a couple of hundred thousand dollars in working capital to just be able to sort of sustain that right, to carry the month the rent, and then they submit the billing, and then they’ve got to you know, carry the next couple of months while they’re waiting to be paid. Some things may mitigate that a little bit. They may have credit lines with their suppliers and what have you. But in essence they’re going to need a couple hundred thousand dollars of working capital. And if they’re sort of growing very moderately or they’re, they’re sort of out of plateau and it’s taken them some time to get there that may be sustainable, but the minute they have an opportunity to maybe do 2 million of sales or 3 million of sales, or take on more projects their cashflow problems are going to you know, increase exponentially.

Frank:
And so the cashflow limitations really you know, limit their growth and, and, and create a lot of risk for the project and all the players involved. I don’t know if you have anything to add to that, Scott.

Scott:
Yeah. I think that is a huge misconception. And most of the GCs that I speak to nowadays are, you know if we have a client that’s in our program that they think, Oh, if they’ve got cashflow problems, then you know, they’re, they’re financially not sound or they’re, they’ve got other issues and it’s quite the opposite. It’s the guys that have more work than they know what to do with, it’s the guy, like you just said, they may be built up a little capital to get them, you know, 90 days or whatever, but now they’ve got an opportunity to three, three new projects and they all start within the next month. It’s, it’s, those are the cashflow issues, oversaw the guys with the, the the opportunity to grow and take on more work. So I think that’s a big misconception of cashflow issue,

Frank:
Right. No, I absolutely yeah, it affects everybody from the supplier all the way up to the owner. The banks, you know, everybody’s concerned, right? The banks and the owners, they want you know, the unconditional waivers every month, but of course the sub can’t pay the supplier typically until they’ve been paid. So then there’s this sort of, you know game of cat and mouse and everybody in the meantime is trying to protect themselves and, and, and understandably mitigate the risk. And it just, you know, it causes problems. It causes delays, it causes uncertainty. I can’t tell you how much time I spend speaking to our clients, suppliers explaining our program. And of course, once they understand it, they feel a lot more comfortable funding the project. So the next issue is the allocation of funds, right? We believe that this is the next key issue that has to be addressed in order to have a successful solution.

Frank:
So, you know, allocation funds also known as funds control. You know, obviously that’s really the key, right. You know, regardless of where you are on the chain, if you’re the owner or your supplier or anybody in between, everybody wants to make sure that they’re going to get paid. Right. And everybody wants waivers from the people below them. Right. So the owner to the owner, everybody’s below them, right. To the general contractor, essentially everybody’s below them. And of course each sub has their respective second tier subs or suppliers. And so, you know, making sure payroll is made, you know, if it’s a prevailing wage situation or certified payroll, or what have you, obviously, that’s, it’s even more important that everybody is paid timely. You know, waivers have to be collected. And of course, you know, can’t do that unless everybody’s being paid you’ve got union dues and you know, a number of other expenses that can encumber a project if they’re not paying.

Frank:
Right. So we believe that part of the solution has to be a solution that addresses, Mmm know, clearing the job of all liabilities, right. Anything that can come back and basically encumber the project and therefore become a problem to, you know, the general contractor above you or the owner or the lender, and therefore disrupt the flow of, of payments. Right. there’s a lot of sort of robbing from Peter to pay Paul that goes on in this business. And you know, it, it’s, it’s almost this necessary evil, right? I mean you know, a number of States, I think it’s 19 or 20 States actually have trust fund laws that, that really would very strict, strict restrictions and penalties on, on robbing from Peter to pay Paul. But I’ve yet to meet a subcontractor that has not been, you know, at, at least at one point or another sort of forced into that situation.

Frank:
Right. Because you know, they have to keep these jobs moving or they’re also risk, right? I mean, they have schedules to keep, and of course, if they get behind that also puts their payments at risk. Right. So we believe that another key component to project success is the allocation of funds and also transparency. Right? So making sure that the supplier knows who the owner is and that the owner knows who well, the, certainly they would know who the subs are, but they might not know who the second tier subs are. So we believe that bringing transparency to the job and making sure that all the funds sort of being that third party that makes sure that everybody gets paid is another key component to solving this problem. Scott, you have anything to add?

Scott:
Yeah. The transparency, I think is huge. And I think that’s, you’ve probably mentioned that already in the intro. We mentioned it. Yeah. Every step of the way, the transparency on a project, you know um, it’s amazing how complex a construction project really is, you know, and how one level doesn’t understand the next load. It’s really surprising that, you know, sometimes even the general contractor has no idea who the suppliers are, who the second tier subs are on their project and every single person on that project poses a risk in one way or another. So the, the allocation of funds, the funds control approach, that’s taken again as part of that overall solution is huge. I think, to take that risk away from, from the project, from, from the bank, the lender, the owner, the surety all the way down to the supplier.

Frank:
And that uncertainty causes delays in itself. Right. you know, I mean, if, if an owner or a general contractor knows, or has a high degree of comfort that the parties beneath their subs, or anybody who has the right to encumber the project and put their relationship or their payment from their own risk if they have a high degree of comfort that they, that those funds have all made it to the right hands things are gonna flow. Probably a lot faster. Our findings have been, we ran a survey a couple of years ago as an informal. We did it with I think it was 10 or 12 clients, but we found that there was, they were being paid on average seven days faster or something along those lines. So you know, getting those unconditional waivers to the owner or giving them the comfort that everybody’s being paid at, the funds you’re getting to the right place is definitely a key, you know, it greases the wheels and it keeps these projects on schedule.

Frank:
So the next component that we feel is a, is a, is a key factor, and this is monitoring, right. You know, as the slide says, monitoring is almost always overlooked until there’s an issue. Right. and one of the, that’s another thing that we believe is key, right? We believe it’s key that the licenses insurance you know, taxes, certainly payroll taxes are being monitored. Right. we believe that, you know, the project’s margins as well. It’s important that we, you know, when we have a client on board, you know, we, we want to monitor their license or insurance, their workers’ comp. We make sure that they’re 940, 941s are being filed and paid. But we also monitor the project margins for them, right. Obviously we’re doing this for ourselves, but we don’t want our sub to, you know, or our client, or really anybody that we’re working with on the project, as I like to say, sort of run out of runway, right.

Frank:
When that plane lands, you want to make sure there’s enough runway you know, for it to come to a full stop, right? So we monitor the project margins because if God forbid there is a shortage or, you know, we think knowing about it as soon as possible is key. You know, maybe there’s some change order that wasn’t submitted that really should have been, you know look sometimes our clients, you know, miss bid a job, they low bid it, but often there’s some sort of extra work or something that was done. And by tracking the project margins, it will immediately highlight any issue if, you know, we, we track each line item, right? So if a client of ours, typically the first year sub loses, I was losing money on a particular line item. We’re going to highlight that for them right away.

Frank:
Worst case it educates for the next project, right? They don’t make that mistake again, for whatever reason they use old pricing or what have you, or best case, it highlights the fact that, you know, what, there was a delay, here’s why it was the owner’s fault or the chief sees fault, or this other subs fault. And you know, what, I’m entitled to a change order. And, and so we think tracking the project margins is very important. Also just monitoring the overall compliance requirements of the project, right? So again, if it’s, if it’s if it’s a prevailing wage or, or certified payroll you know, we we want to make sure that our clients are getting that in on time to the general contractor, the owner of the lender or what have you, because again, these are key to you know, getting paid quickly, right. You know you know, I can’t tell you how many times over the years we’ve, we’ve had you know, clients have come to us and their payments are, were held up two, three, four weeks because they, they didn’t, you know, fill out the proper, you know, submit certified payroll or, or, you know, God forbid let their insurance lapse or something like that. So we think monitoring is, is a key component to making sure that you know, payments get to the right place quickly.

Scott:
Yeah. And, and all that too. Frank, I think that, that monitoring not only, you know, again, transparency for everybody on the project, the benefit that the GC or the owner, so to speak gets from that monitoring, knowing that anything contractual that they require for, to issue payment is being tracked and taken care of. We’re on top of that likewise that takes a lot of the back office work off of our client. You know, when we’re on top of their licenses insurance, making sure that they’re up to date with certified payroll, everything that’s required for them to submit to get that payment. So again, that monitoring is, is really benefit to everybody. Right.

Frank:
Yeah. Agreed. I mean, I can’t tell you how many clients you know, occasionally we have a client say to us, you know, what, what’s all this babysitting about, you know, but inevitably if they overlook, you know, renewing their you know, they’re filing their their annual report with the secretary of state, are we knowing the license or, or, you know, or insurance is, is you know, coming close to lapsing or they’ve forgotten to submit something that the general contractor, the owner requires inevitably, you know, they’re grateful. And, and so, you know, it really protects everybody involved, but the key here is it greases the wheels, right. Everything that we do, you know, what we did was when we started putting this program together almost 12 years ago, we, we looked at sort of everything that could, was really causing problems on, on these projects.

Frank:
Right? So again, cashflow allocation of funds are pretty obvious, the monitoring less obvious, but really and the final topic is, is, you know, we believe this is risk mitigation, right? I mean, that’s, everybody’s goal. You know, no matter where you are on the project, right. If you’re a supplier, you want to make sure you’re going to get paid. If you’re an owner, you want to make sure that the suppliers are being paid. You know everybody’s really trying to cover their butt, right? So we believe that when packaged up the key here is, is mitigating risks, right? So if we have a subcontractor in, in our program when we fund that project, we get a commitment from the general contractor that these funds for this particular project are doing, right? So that, that sub, now doesn’t have to worry about the risk of some offset on that pay application later in the process likewise when the owner or the general contractor are going to release payment, they don’t have to worry if, if the suppliers or vendors underneath our subcontractor client are paid because we employ very strict funds control program.

Frank:
So it’s, it’s really removing everybody’s liability that, that the suppliers know they’re going to get paid. The subs have use of their funds almost right away. And again, the general contractor and the owner know that the right people are being paid look, this avoids delays, right. It, it you know, it’s one of the biggest you know, in my experience anyway, over 30 years, commercial construction and finance is you know, the delays are usually not what they appear to be at first glance, right? That sub says he’s having a problem. The material’s backordered, maybe it’s really not back ordered. Maybe he’s waiting for a payment from another job to pay that supplier. So the supplier can get that material on the job, right. You know, staffing or labor problem again that’s the cause of a lot of delays and sort of puts tension on these relationships, but often it’s because that subcontractor is having trouble making payroll because that GC and that owner are taking 60 days to pay them.

Frank:
And they’ve taken on some bigger projects and they’re being stretched thinner and thinner. So you know, we believe again that these four things when packaged together, and it’s what we do obviously are a you know, our key component to reducing the risk dramatically for, for all parties involved. And you know, we think that’s the key to project success. You know, our clients, you know, coming into this with the crisis of the COVID crisis and what have you everybody that we were working with had an opportunity to do at least 50, if not a hundred percent more work than they had done the prior year. So you know, if you can make your general contractor or owner comfortable, they’re going to give you more work. And, and that’s another issue that we believe you know, we, we solve, right?

Frank:
So by making people comfortable that cashflow is simply not going to be an issue, right. Funds getting into the right places, the right people’s hands, it’s not going to be an issue monitoring the things that could inadvertently become a liability of the owner of the general contractors, such as a license expiring or insurance expiring, or what have you is no longer an issue it’s being monitored. And when you put that all together and you look at all the risks that’s eliminated from this you know, if we believe that this is the solution that can you know, help these projects be more successful.

Scott:
Yeah. Not, not only, you know, from the GC obvious risks mitigation that they’re provided by making sure everybody’s paid waivers are collected, everything’s done, or payroll is being made. But, you know, especially as you mentioned with the, with the COVID going on, I’ve been having a lot of conversations the last few weeks with, you know, as projects start to open up again and get going again and get turned on. Some of the suppliers, a lot of the suppliers that we work with our clients work with they said you wouldn’t believe that the requests for quotes, that they’re getting for materials for these projects. And so the supply chain is going to be tight getting material, and, you know, they tell it come right out and say, you know, who, who do you think is going to get in first in line and material, someone that’s given me a joint check from a client you guys are working with, or someone that’s asking for more credit I’ve never heard of. So, you know, even the risk that the, you wouldn’t traditionally think of the, the suppliers giving these guys more credit, they’re much more comfortable when they get a joint check from us and making sure they’re getting paid timely. So a risk for them as well.

Frank:
No, that, that, that’s a great point. Yeah, I mean, again, just greases the wheels. That’s a thought that always sort of comes to mind, right? It just everybody feels more comfortable, right? The supplier can now rely on a third party knowing that they’re going to be paid and not only the insurance that we provide so to speak, but also the fact that they’re gonna be paid properly. Right. So now not only is there a third party, making sure they get paid, not only a waiver is being collected every month. But they’re also being paid promptly when that general contractor owner has to release payment. Now they don’t have to rely on the prior period, right? The prior periods of bills being paid, they now know that if it’s, you know, July 2nd or third and they, their, their sub is just billed for June. They know by the 11th, 12th, 15th of July, that all of the liabilities associated with June have been paid, waivers have been collected. And what have you. So we you know, we believe that this is the key, the four components put together.

Michael:
Guys, before we move on, I actually wanted to wanted to pose a question that we got from the audience. And the question is, is there language that a subcontractor should try to include in the contract before the project starts to help mitigate the subcontractors risk and language that the GC will accept as well?

Frank:
Right. So one of the things that we recommend that our clients, which again, are typically the first tier subcontractors add into the language in their contract is we give them a, I think it’s a two sentence paragraph that we suggest that they either, if it, if they’re, if it’s their contract, they would put that in their contract. Or if it’s, if they’re submitting a proposal or a bid, they would include that in the bid language to make sure that their general contractor is aware that they work with the funds control you know, risk mitigation monitoring company upfront. And if there’s any questions or concerns what that does is, is, is it gets that out of the way at the very beginning, right? So you know, that from our standpoint, that’s the best way to put it. We, we believe obviously in our own solution, of course but you know, obviously you can, you know, some people are pushing for faster payment or, you know, regular payment terms, irrespective of the paid when paid or when the owner pays or what have you.

Frank:
But from our perspective, when our clients come to us and they say, Hey, what should we work into this language? How do we make sure that we’re going to be able to utilize this program when the time comes? And we always tell them to basically bring this to the table. Right, right. At the initial you know, very early on, I can’t think of the last time that a subcontractor client has asked us to speak to the general contractor, general contractor says, okay, you’re a low bid, or, you know, we want to award you the job, explain to us this cash management company that you refer to in your proposal. You know we don’t understand this. If that happens, we ask the client to arrange a call. And I honestly can’t think of the last time that the general contractor didn’t, you know, get off the 10 or 15 minute phone call with me or Scott and say, wow, this is, this is great. I just got a whole lot more comfortable now knowing that when I am about to release payment for a certain period, all of the liabilities associated with that period have been paid. Right. So that, that’s, that’s what we recommend.

Scott:
Yeah. I was going to add that Frank too. We definitely have language that we have our clients put in there, there are Ps or proposals. I mean, and their contracts, if we have a client that’s already started a job, I was just going to say, I don’t think we’re batting a thousand when it comes to hopping on, on the phone with the customer, with the GC and explaining the program. And actually, I can’t think of the last time we got him push back at all, to be honest with you, so sure.

Michael:
And I know we’re going to, I know you guys are gonna jump into the application process here in a second of how, if people are interested in these tools how they can how they can get into that and how to contact you guys. One question you know, you guys provide a lot of solutions for helping contractors navigate through these complex problems. How does, how much does that cost? How much does that cost to a subcontractor ?what’s how does that work? Because you do provide a lot of help and resource to help people navigate these problems.

Frank:
Right. So typically the, the, you know, it depends on a few factors, the size of the client size of the project. And there’s a couple of factors, but typically it’s going to run about 4% of the project, right? So the way it works is we advance when our clients, bill every month we, we advance 80% of those funds. Typically you know, those funds are gonna go to payroll and, and, and sub suppliers of vendors. And what have you when the general contractor ultimately pays we we released the balance of the 20%, but depending on our client’s mix of suppliers and material people. So in other words, if they have a you know, 60% of the job let’s say is materials or supplies most our clients are able to get an early pay discount from their suppliers, right?

Frank:
I speak to reps on a regular basis explaining to them that look, you know, you’re going to be paid promptly. You know, we’re on this project, there’s a lot less risk. So most of our clients are able to get at least 2%, occasionally they can get three but that offsets our fees. So typically I think on average, it costs our clients about two and a half percent of the value of the project for us to provide our services and, and, and finance the whole project. I mean, the client you know, really can essentially do the whole project now without coming out of pocket for the most part. And again, so top line costs about 4% and on average it costs about a two and a half as the net cost. Again, if you, if you’re a labor only subcontractor, obviously there’s not going to be a lot of room for you to offset it. So, so you may sort of get stuck with the full 4%. But generally when their suppliers or other vendors involved, particularly if they have second tier subcontractors, if, if our clients, the first tier and their second tier subcontractors they’re usually able to get a 5% pay discount from them. There’s most second tier subs will readily give a 5% discount to be paid in two or three days versus two or three months.

Michael:
Sure, sure. That’s great. And, you know, I think the thing to underscore there is you’re providing so much value that to get it at a, a at a net discount on top of all that you provide is a really good deal. We have another a few additional questions. One yeah, an attendee here says I work for a subcontractor and we recently just started asking how our clients expect to pay once the job is completed. And for the most part we’ve been getting the answer of check or credit card once the job is complete. Do you think it would be beneficial for us to be asking about funds control or is that the contractor’s responsibility to disclose?

Frank:
So I’m a little confused by the question of who the parties are. So that is the question being asked by a first tier subcontractor that’s working for a general contractor?

Michael:
Yes.

Frank:
Okay. All right. So yeah, I’m not, I’m not really not following what the, what the issue was. Can you read that back again, Michael?

Michael:
Sure. I’m going, gonna, I’m going to ask another question and then I’m gonna message the attendee to to see if they can clarify or if I can read it through and and see if I can make it more clear. So I’ll maybe give you an easier question right now. So in regards to the fee for, for FK construction services, can you pay by contract or do you need to do it… Or do you need to use you guys for all of your projects?

Frank:
Right. So that’s a great question. No, our clients pick and choose the projects that they want to finance. So if our client has 10 projects a year and they want to finance two or three of them we encourage that we would rather clients use us strategically simply because we found that if it works to them on a longterm basis they remain clients for a long time. Right. so yeah, they, they get to pick and choose, and I work very closely. I’m an ex GC. So I didn’t know, Scott has also worked in construction for coming on 20 years as a, as a project manager, project controls. So we really try to make sure that we work with the client and we’ll sort of look at all their jobs and okay.

Frank:
You know, this GC is a slow payer. Maybe we should finance this project, or this guy’s a quick payer. Maybe we should do this one, or there’s a lot of material on this job, no material on this job. So we try to definitely make this work. I mean, you know, at this point in my career and, and our companies you know, we, we want sustainable solutions, right? We want things that work for, for both parties. You know, we want to grease the wheels for our clients, that people on the project, but also for ourselves and keep things you know, w where they work for the client. So they get to pick and choose.

Scott:
I think that’s huge, right? I mean, that’s really important. I think that we’re our program isn’t for everybody, certainly we’re, we’re here for the ones that are, you know, we’re not we’re very methodical in the approach, the product you approach in a lot of the clients. Exactly like I said, it doesn’t make sense for them to put every project in our program. If they’ve got a GC they’ve worked for for 10 years, they know they’re a 30 day payer, right. On the day there, they don’t need to put that in there, but they’ve had an opportunity to work for get a larger job, and they’ve never worked with them, or that GCs had a reputation of slower payment. If they can use this then. Great. We’re, we’re very conscious of that.

Frank:
Yeah. Another thing we do is, you know, when we’re involved in these projects, we really sort of eliminate any reason that we, that the general contractor, the owner would not pay. Right. So in other words, you know, I mean the main thing is obviously allocating the funds, right? We clear the decks as we like to say, internally, we pay all the projects liabilities each month. Right. and of course we use, you know you know, levelset for the notice to owners or the, or the, or the collecting the waivers and what have you. But and by monitoring everything, the licenses are intact. Insurance is, you know, is active, yada yada we we really eliminate any reason that the general contractor would have not to pay. And obviously we want to protect ourselves. We’re advancing the money. We want to make sure that that money is ultimately going to come back.

Frank:
But in the course of protecting ourselves we really have to protect our client and the general contractor and the suppliers for that matter. Right. our role is to really protect everybody. And yeah, that includes making sure that our services are a good fit, right. There are instances where, you know, someone comes to us and they have a milestone type project. Hey, we get paid. As soon as we hit each milestone, there’s really no, no funding payment delay. Once we hit that milestone, you know, we’ll tell our client maybe that they shouldn’t use us on this. They should use us somewhere else. So yeah. They get to pick and choose.

Michael:
Sure. and another question, do you, what what limitations do you have in regards to an ideal customer, are there any cutoffs or any necessary revenue sizes, or company sizes or companies that you won’t work with. What are some of those limitations if someone were to apply?

Frank:
All right. Great question. So our typical client is, as I said a few times so far, is the first year subcontractor, not always sometimes the second tier. We have some second tier subs on the NFL stadium in California, for instance, on bigger projects like that. But typically it’s the first tier. So they’re typically doing two to 20, 25 million in annual sales. Sort of our real sweet spot is clients doing four or five, 6 million that have an opportunity to grow to, you know, 15, 20, 25 million. So we certainly take on clients smaller from time to time, but we’re sort of looking for that client. That’s that sub that’s doing a couple of million in sales and against them. So two to 20 million is our sweet spot as far as client and client size.

Michael:
Great. we have, I guess if we have time for we have time for one more question and our attendee that’s the first question that kinda confuses us a little bit. I gave a little bit of clarity and please, if we don’t answer this appropriately, you can email us directly at the contact information listed here. But what I think they’re asking is, you know, you had mentioned the value of transparency when it comes to using funds control as as your payment mechanism. As the, as the subcontractor someone someone receiving payment through funds control, what is the, what’s the appropriate response for the person receiving funds control is payment in regards to transparency. How should the person receiving that…ask the proper questions to have appropriate transparency, to understand how your process works as there, as the method of payment?

Frank:
Okay. So uh…

Michael:
Apparently, apparently I got that, right. So they’re trying to understand if they’re being paid through funds control, like if their customers using FK construction, what types of questions should they be asking at the outset so they can manage expectations?

Frank:
Okay. So if they’re the beneficiary of the funds control, right? That’s their client, is the first tier sub, and let’s say, this is a supplier. I mean, when, what we do with our, with, with our clients, anyway, what we do is we notify all the suppliers. We send them an intro email that I, the first thing we do is identify the project owner, the general contractor of the project location and the dollars that have been allocated to them on that project. Right? So if it’s a million dollar project and it’s the sub is an electrical contractor, and this is the electrical supply house and our contractor estimates that he’s gonna spend $120,000 throughout the course of the project. That’s what we let them know. Right. So the recipient of that is getting all the information about the project that they’re about to release materials to, but they also know in advance, how much has been allocated to them, right.

Frank:
So they can do one of a couple of things. If, if that supplier has given that subcontractor a number, right, maybe it’s done a takeoff on plans or whatever the case is. He can of course match that up to the bid that he gave him. Right. So when we send out that package and we say, Hey, $120,000 has been allocated to you on this project, they can match that up with their contract to say, okay, right. That matches. If it’s an estimate or if it’s just a sort of a budget when a lot of suppliers will do that we work with is they’ll contact us, we’ll confirm the dollars, we’ll see up this, you know, they’ve earmarked $120,000 for electrical supplies. What, what that supplier will do is monitor the amount, basically keep an accounting of the material that’s been released to that project.

Frank:
And once they get close to 120, or if they work to exceed it, they would contact us. And then of course we would say, Oh, you know what, there’s a change order. You’re fine. There’s another $27,000 earmarked to you, right. Or to, you know, to your supply materials with you. So that’s the type of accounting. I mean, it’s hard to cover all this in a, in a short place, but, you know, we, we take we start with with, with the schedule, the values, the underlying bid, we let the parties know how much has been allocated to them. And again, that really greases the wheels, these suppliers now I mean, rarely have a problem issuing credit when we’re involved, even when they’ve turned down our client before, or maybe they’ve told our client that, you know you know, look, you’re you’re at your credit limit. We can increase it. When we explain that, you know, we’re allocating money to this project, we’re going to be paying you by joint check. We’re going to be contacting you every month during the waivers. And what have you again, I can’t remember the last time a supplier said you know, said, no.

Michael:
Great, well, we’re, we’re a little over on time. Frank, Scott, I really wanna appreciate, I really want to thank you guys for your time and going through such an extensive topic. I know it was definitely valuable to me, so I hope the attendees found it valuable as well. Attendees, thank you for attending. As a reminder, if you have any follow up questions for me or for the other panelists, our contact information is here on the screen and feel free to follow up with this. FK is a great referral partners partner of ours because they provide a lot of value to construction businesses. So I can’t speak highly enough of them. And thanks again for everyone for attending and hope you have a great day.

Frank:
Yep. Thank you, Michael. Thank you, Michael.