Guide to the best payment methods for construction suppliers

Introduction

Processing payments used to be a simple and uneventful activity for construction suppliers. Until recently, you'd either collect cash on delivery or wait for a check in the mail. However, modern payments like ACH, eChecks, and Digital Wallets have taken off since the 2010s. Gartner estimates that 80% of all business-to-business transactions will be digital by 2025. 

Even contractors, architects, and homeowners are jumping on board. Accepting payment methods other than cash or check will soon be a necessity for all building material suppliers.

This guide will break down the best payment methods for the construction industry. We'll also help you evaluate and identify the right ones for your business model and customers. 

1. Benefits of modern payment methods

While cash and checks are simple and battle-tested, they are also plagued by fraud, theft, and other limitations. Modern payment methods are designed to close the gap and support more complex types of transactions, merchants, and buyers.

For example, many building material suppliers request that a balance payment be made and received in full before shipment. Waiting on a check can delay this process by a week or even longer if it bounces. A faster and cheaper alternative is to accept a same-day ACH payment. 

Using payment methods that customers prefer and fit your unique billing process can unlock concrete benefits for your construction supplies business:

• Get paid faster: Unlike checks, you can access funds within days or even immediately, enhancing cash flow and a smoother fulfillment process.
• More loyal customers: Allowing customers to pay with their preferred payment methods can improve satisfaction and differentiate your business from competitors.
• Lower risk of fraud: Modern payment methods have extra security features and sophisticated dispute processes that can better protect you and your customers.
• Optimize fees and cost: Modern payment methods are digital, automated, and easy to reconcile. Some are even free to use.

2. Choosing the right payment methods

Construction materials is a complex industry unlike any other. So unsurprisingly, choosing the right payment methods to accept comes with its own unique set of challenges and considerations: 

• Large transactions: Material transactions can range from a few hundred to millions of dollars. There is no universal solution, but material suppliers should strive to find a balance between quick settlement, reasonable merchant fees, and a smooth buyer experience. It's also important to keep in mind transaction limits and ensure that the payment can support the expected transaction volumes.
• Variety of payments and requirements: It's important to note that not all payments in a materials transaction are the same. Deposits, balance payments, and service retainers each have unique requirements. When choosing a payment method, it's crucial to consider features such as instant confirmation and the ability to reverse payments to ensure that they align with your needs.
• Variety of buyers: Material suppliers sell to a variety of customers, including homeowners, architects, and contractors of all sizes. However, there is no universally preferred payment method. Therefore, most suppliers should consider accepting multiple payment methods to cater to their buyers.
• High-risk industry: Construction is a high-risk industry, so it's important to prioritize payment methods that offer enhanced security and fraud protection.
• Fees and margins: The construction industry is cost-sensitive, making it crucial to factor in fees and the cost of manual tasks like reconciliation. An extra 50 basis points and 15 minutes spent per day can make a $50K+ difference to your bottom line.

In this section, we'll arm you with a Cheat Sheet covering the Top 15 payment methods for construction suppliers and make specific recommendations based on your business model and customers.

2.1 Payment Methods Cheat Sheet

With dozens of payment methods to choose from, it's essential to systematically evaluate and compare your options. 

We have compiled a list of 15 payment methods best suited for building materials sellers across six categories: 1) Traditional Methods, 2) Cards, 3) Bank Transfers, 4) Digital Wallets, 5) Peer to Peer, and 6) Alternative Payments/Lending.

To help you quickly and efficiently evaluate payment methods, we've spotlighted seven key attributes:

• Transaction Limit: The maximum amount of money that can be transferred in a single transaction or on a daily/monthly basis
• Merchant Fees: The cost that the merchant will incur to process the payment
• Merchant Risk: The overall risk factor and level of protection against fraud, theft, loss, etc.
• Reversibility: Whether the buyer can reverse the payment after it's been confirmed and received by the merchant
• Limitations on reversals: The number of days that the buyer has to dispute and reverse a payment
• Payment Confirmation: How long it takes for the payment to be validated and confirmed by the bank
• Settlement Time: How long it takes for the merchant to receive the payment in their bank account

2.2 Quick Recommendations

Every building materials business is different. So, it's hard to generalize and recommend a set of payment methods that will work for everyone. However, below are some quick suggestions that can serve as a starting point for you.

You can also schedule a free consultation with one of our payment experts to receive personalized recommendations for your business. 

For suppliers that primarily work with:

• Homeowners: Cards, Apple Pay, Zelle, Venmo
• Architects: Cards, ACH
• Small Contractors: Business / Charge Cards, ACH
• Large Contractors: ACH, Wire Transfers
• Public Sector: Checks, ACH, Wire Transfers

For suppliers that need to manage:

• Time-Sensitive Payments: Opt for payment methods that can be confirmed immediately and settled within hours or days. We recommend Cards, Real-Time Payments, and Same-Day ACH.
• Large Payments: For payments above $100K, ACH offers the best combination of cost and settlement speed. For payments above $1M, your only options are Wire Transfers.
• International Payments: Your only options are Wire Transfers and third-party global money processors like Wise. 

3. How Nickel Can Help

Nickel is the first payment software designed for the construction materials industry. Material suppliers use Nickel to accept diverse payment methods and automatically collect sales tax and lien waivers. Nickel offers the fastest payment experience for your customers and is the only platform that saves you money on transaction fees.

4. Traditional Methods

Physical payment methods have been used to exchange money between businesses for decades. They've been the default form of payment for centuries, representing a direct exchange of physical currency between parties

Cash

Cash is king in construction! And for good reasons. The transaction is instant, with the recipient receiving tangible bills without processing time or fees. However, carrying large amounts of cash can pose security risks, and there's no transaction record unless a receipt is provided.

Check

Checks are written orders that instruct a bank to pay a specified amount from the check writer's account to the person or entity named. They've been a staple in the payment system for decades, offering a paper trail of transactions. While checks are still accepted in many places, they can take several days to process, and there's potential for bounced checks if there are insufficient funds. This can be difficult to recover, especially across state lines.

5. Cards

Card payments, encompassing debit cards, credit cards, and charge cards, offer a versatile and widely accepted method for conducting transactions, both online and offline, by drawing upon either the user's bank account balance or a pre-approved credit limit. Card payments often come with additional features such as reward programs, cash-back offers, and heightened security measures, making them a convenient and preferred choice for consumers and business payers.

Credit Card

Credit cards allow customers to borrow funds up to a set limit for their purchases. As a merchant, accepting credit cards can increase sales as it offers customers the flexibility to pay later. However, each transaction comes with hefty processing fees, and there's a potential risk of chargebacks.

Debit Card

Directly linked to the customer's bank account, debit cards deduct funds immediately upon purchase. Unlike credit cards, they only allow spending up to the available balance in the account. They provide a convenient and fast payment method with significantly lower transaction fees. But most banks limit single debit card transactions to a maximum of $10K.

Business / Charge Card

Business or Charge Cards are designed specifically for business expenses. They often come with higher spending limits and detailed expense reporting. However, some charge cards like Amex carry high fees for the merchant and are not always supported by POS systems and payment processors.

6. Bank Transfers

Bank Transfers are a form of electronic payment made by transferring funds directly from one bank account to another. Modern bank transfer methods were developed in the 1970s and have become a fast and affordable payment method popular with businesses and consumers.

Standard ACH

Standard ACH (Automated Clearing House) facilitates electronic transactions between banks. Funds are transferred directly from one bank account to another, typically taking 1-3 business days. It's a popular method for regular payments like salaries and bills due to its cost-effectiveness and efficiency.

Same-Day ACH

Same Day ACH operates similarly to Standard ACH but expedites the process. Transactions submitted by specific cutoff times are completed on the same day. It's useful for urgent transactions, though it might incur higher fees.

Electronic Check

eChecks are electronic versions of traditional paper checks, drawing money directly from the payer's bank account. They process faster than physical checks, offering convenience and reducing the paper trail. eChecks share the same payment infrastructure as ACH and have the same limitations and risks.

Wire Transfer

Wire transfers are real-time methods to move money from one bank to another. It's one of the few payment methods that support international transfers. They are secure and rapid but can come with higher fees. They're commonly used in the construction industry for large-sum transactions.

Real-Time Payments

Real-Time Payment systems process transactions instantly, 24/7. They provide immediate payment confirmation, aiding cash flow and transaction clarity. The Clearing House's RTP system and the Federal Reserve's FedNow service are the two most prevalent real-time payment methods in the US.

7. Digital Wallets

A digital wallet, or an e-wallet or mobile wallet, is a payment method that lets customers make payments using accounts stored on their smartphones and other devices. A digital wallet will securely pull up and use the underlying card or account as the payment method when making a transaction.

Apple Pay

A digital wallet for Apple device users, Apple Pay offers a secure payment method. Customers authorize transactions using biometrics or a passcode. Accepting Apple Pay provides a streamlined payment experience, potentially reducing checkout friction and abandoned carts.

Google Pay

Google Pay, formerly known as Google Pay, operates similarly to Apple Pay, storing payment details on Android devices and Google accounts. Users can tap their device on compatible payment terminals or select Google Pay online. Transactions are secured with layers of encryption and unique transaction numbers.

8. Peer to Peer

Peer-to-peer is a type of digital payment made directly between individuals or businesses without relying on a financial institution to process the transaction. But Peer-to-Peer payments typically require using a third-party platform such as Zelle or Venmo and a bank account to cash out your funds.

Zelle

Zelle is a rapid digital payment network that allows customers to transfer funds using just an email or phone number. Partnered with many US banks, Zelle transactions are instant and often free. It's a straightforward option for merchants wanting swift peer-to-peer transactions.

Venmo

Venmo is a mobile payment service owned by PayPal. Users can send or request money via the app using the counterparty's username or email address. It was primarily used for transactions between friends and family. But in the last two years, many businesses have also started accepting Venmo payments.

8. Alternative Payments

There has yet to be a consensus on what is considered an Alternative Payment method. Some, like cryptocurrencies, are irrelevant to the construction industry. So, for this guide, we'll focus on the emerging category of Buy Now, Pay Later solutions.

Buy Now, Pay Later

Services like Affirm or Afterpay allow customers to defer or split payments into installments. These services can increase purchase rates by offering consumers more payment flexibility. You'll receive payments upfront as a merchant, but partnering might involve sharing a fraction of the sale with the service provider.

Unfortunately, most Buy Now, Pay Later solutions are only available to the consumer goods industry. But companies like Nickel are bringing deferred payments to the construction industry. Learn More.