The construction business would be a lot more fun if it weren’t for…clients and contractors. If you’ve been doing this for a while, you know there’s often a love-hate relationship going on.
Managing contractor compliance is critical, but it’s time-consuming for construction companies, finance teams, and credit managers. Late payments, financial instability, and regulatory violations can cause costly project delays and legal issues.
Yet, many companies rely on outdated or manual processes, making contractor compliance management inefficient, often set on auto-pilot until a problem arises. However, contractor problems often have a downstream impact, creating cascading problems with your timelines, which can cause cash flow problems and delays.
The good news?
With the right tools—such as on-demand business credit reports, account monitoring, and portfolio credit risk analysis—you can streamline contractor compliance and reduce the time it takes.
Contractor Compliance Management Strategies
Data from the US Bureau of Labor Statistics shows that only about 35% of construction companies in business in 2011 made it 10 years or longer. There are plenty of reasons why, but working with unreliable contractors and subcontractors is one of the big ones.
You need a solid strategy for contractor compliance management to avoid becoming yet another statistic.
Establish Clear Financial Vetting Procedures
Before engaging with contractors, it’s essential to assess their financial stability. When you’re depending on them, their financial health can impact their ability to complete projects on time, pay subcontractors, and meet compliance requirements—affecting your reputation.
You can streamline your vetting process by using on-demand business credit reports to quickly assess a contractor’s creditworthiness. Checking for key financial warning signs such as high debt levels, slow payment history, or recent bankruptcies can improve your peace of mind and help you deal with any concerns upfront. This can help reduce the risk of partnering with unstable contractors.
Implement Continuous Monitoring for Early Warnings
A single credit check at the beginning of a project isn’t enough. Contractors’ financial health can change rapidly due to economic fluctuations, mismanagement, or unforeseen setbacks. Contractor compliance management requires regular account monitoring, such as real-time tracking of contractor financial health and alerts when financial risks arise, such as missed payments or declining credit scores.
This provides you with an earlier warning, so you can address potential concerns before they become your problems. Faster responses to potential issues prevent project disruptions.
Portfolio Management
There’s some level of risk in every contract or working with any contractors or subs, even ones you’ve worked with before. In business, it’s all about managing your risk appropriately. Before you take on new contractors or clients, it’s a good idea to evaluate that risk in light of your entire credit portfolio.
Even if a contractor is low-risk, other areas in your portfolio may need attention. but if you don’t know, your risk levels can increase fast.
Streamline Documentation and Compliance Tracking
Manual compliance tracking leads to errors, missed deadlines, and inefficiencies. A digital approach ensures all contractor records (licenses, insurance, financial statements, regulatory documents, etc.) are up-to-date and easily accessible.
This makes tracking contractor compliance management much easier.
Standardize Compliance Policies to Minimize Delays
Without standardized compliance policies, finance teams can waste time addressing the same issues repeatedly. Clear, enforceable guidelines help construction firms manage contractor risk more effectively.
Strategies include:
- Establishing minimum financial requirements for contractors, using business credit reports and portfolio credit risk scoring and analysis.
- Requiring ongoing compliance checks instead of one-time approvals.
- Aligning compliance policies with industry regulations and best practices
By setting clear expectations, you can streamline contractor approvals and maintain better compliance management for contractors.
Take a Proactive Approach to Contractor Risk Management
Waiting for compliance issues to arise means you have to put things on hold until they are resolved. Delays cost money. A proactive approach, backed by data, can help you stay ahead of potential risks.
Best practices for proactive contractor compliance management include:
- Establishing contract management KPIs to monitor performance and payments
- Prequalifying contractors before bidding begins
- Using historical data to negotiate better contract terms with financially stable contractors
- Leveraging automation to track and assess compliance in real time
With a consistent process and a data-driven approach to risk management, you can improve project stability and financial security.
Streamline Contractor Compliance Management
Ensuring contractor compliance doesn’t have to be a time-consuming burden. By leveraging automated tools like business credit reports, account monitoring, and portfolio risk analysis, construction firms can maintain compliance efficiently and proactively.
With the right technology in place, your finance team can reduce risk, streamline operations, and focus on what matters most—delivering successful projects.
Contact Command Credit today, and let’s discuss your contract compliance management needs and see how we can streamline your systems.