The Pervasive Issue of Slow Payments in the Construction Industry
The construction industry is plagued by a slow payments problem. Studies have consistently shown that it takes anywhere from two to three months on average for construction companies to receive payment, due to various factors such as delays, multiple payment layers, and cost overruns. The economic burden of these sluggish construction contract payments has climbed to an astonishing $273 billion in 2023, representing a staggering 14% of total project expenditures that year.
Identifying the Root Causes
Matthew Calvano, along with Henry Bradlow and Francisco Enriquez, identified back-office inefficiencies as the primary cause of this issue. In response, they co-founded Adaptive in 2021, a platform designed to simplify payments and accounting for general construction contractors. "The construction payment chain involves multiple layers, including banks, developers, general contractors, and subcontractors," Calvano explained in an interview with TechCrunch. "We believe that this complex web, combined with the fact that most construction companies are small- and medium-sized businesses (SMBs) lacking financial expertise, are the primary drivers of the industry’s slow payments."
Adaptive: A Platform for Simplifying Construction Payments
Adaptive delivers an array of workflow automations for financial management, including budgeting, expense tracking, accounts payable, and electronic payments. Using Adaptive’s product, customers can upload documents like insurance agreements and payment requests in formats such as SMS and PDF and leverage automations to take action on these uploads, like approving requests and budgets.
"We’ve built several generative AI algorithms to automate the financial management and bookkeeping workflows unique to construction," Calvano stated. "Our primary competitor is the manual labor required to manage financials, typically supported by email, Excel, file sharing, and the financial features of legacy project management software."
Rivals in the Construction Payments Market
Adaptive’s other competitors include Briq, a startup with a similar financial workflow automation sales pitch; Beam, a fintech aiming to streamline payments, invoices, and receipts for contractors; and MakersHub, which deciphers accounts payable data for construction companies.
However, Adaptive has established itself as a significant player in the market, boasting over 280 construction companies on its customer roster, ranging from custom homebuilders and commercial general contractors to real estate developers.
Growth Strategy: Acquiring Subcontractor Clients
The near-term plan for growth is to focus on acquiring subcontractor clients by building tailored products for that segment. Medium-term, Adaptive will explore monetizing different integrated payments, insurance, and payroll functions, according to Calvano. "Given that we manage our customers’ entire financial workflows, there are numerous opportunities for embedded finance, especially with our focus on SMBs that tend to be underserved when it comes to financial services," he added.
Funding Round and Future Plans
Adaptive recently closed a $19 million Series A round led by Emergence Capital. The funding will be put toward expanding New York-based Adaptive’s workforce from 29 to 45 by the end of the year, according to Calvano. Andreessen Horowitz, Definition, Exponent, 3kvc, Box Group, and Gokul Rajaram also participated in Adaptive’s Series A, bringing the startup’s total raised to $26.4 million.
Conclusion
The construction industry is plagued by slow payments, with significant economic consequences. Adaptive aims to revolutionize financial management for general construction contractors through its innovative platform, leveraging generative AI algorithms to automate financial workflows. With a growing customer base and ambitious growth plans, Adaptive is poised to make a lasting impact on the construction payments market.
Related Topics:
- Adaptive: A construction-focused fintech startup
- AI in Construction: Automating financial management and bookkeeping workflows
- Fintech for SMBs: Embedded finance solutions for small- and medium-sized businesses
