The construction industry stands at a crossroads in 2025. While demand for infrastructure and development projects remains strong, economic uncertainty, rising tariffs, volatile material costs, and labor shortages are creating one of the most challenging operating environments in recent memory.
From delayed projects and ballooning budgets to cash flow bottlenecks and hiring difficulties, contractors and construction company owners are forced to rethink how they run their businesses—and fast.
Material Costs Are Climbing, and Tariffs Are Raising the Stakes
Since 2020, the cost of core construction materials like lumber, steel, and gypsum has surged by 34%, according to the National Association of Home Builders. In 2024 alone, global supply chain disruptions rose nearly 40%, per Resilinc, pushing up prices for essential inputs and delaying deliveries.
Now, sweeping new tariffs on imports from Mexico, Canada, and China threaten to drive costs even higher. With tariffs ranging from 10% all the way up to 245%, according to the White House, construction firms are bracing for another wave of price volatility that could destabilize already razor-thin margins.
These cost spikes don’t just impact budgets—they impact relationships. It becomes more difficult to forecast costs, manage cash flow, and stay aligned with trusted suppliers.
Long Payment Cycles Are Straining Cash Flow
The construction industry’s notoriously slow payment cycles are adding to the pressure in today’s uncertain economic environment. Contractors wait an average of three months to get paid—more than double the recommended 45-day window for healthy cash flow, according to PYMNTS and Investopedia.
This creates a domino effect: when contractors aren’t paid on time, they can’t pay subcontractors or suppliers, which stalls work and drives up costs even more. In today’s environment, those delays are no longer sustainable.
Construction companies should explore ways to speed up payments and gain greater visibility into the finance process. Centralizing and automating AP workflows with AI-enhanced software can reduce delays, eliminate manual bottlenecks, and improve relationships across the supply chain.
The Labor Shortage Persists—and Efficiency Remains a Key Focus
The construction industry continues to grapple with a persistent labor shortage. According to Associated Builders and Contractors, construction needs to fill over 450,000 jobs in 2025 on top of normal hiring just to meet current demand. And while Associated Builders and Contractors notes the number of open positions has dropped compared to 2024, that may have more to do with economic caution than true recovery.
As companies struggle to recruit and retain skilled workers, they’re turning to technology as a solution. Tools like automation, AI, and Building Information Modeling (BIM) are becoming critical to doing more with less—whether that means accelerating project timelines or offloading administrative tasks that bog down back-office staff.
For example, AI-enhanced AP automation can help construction firms:
•Reduce manual tasks such as data entry, approvals, and document matching
•Increase efficiency and visibility with shift from paper to digital
•Speed up payments to keep projects moving and strengthen supplier relationships
•Forecast cash needs more accurately
•Lower risk of double payments or fraud
The Role of Technology Amid Economic Uncertainty
In the face of economic headwinds, leading construction firms are no longer relying on spreadsheets and manual workflows to manage cash flow and supplier relationships. They’re leveraging software tailored to meet the unique needs of the construction industry, giving AP teams more time to work on strategic initiatives and adapt to a rapidly shifting economic landscape.
With the right automation tools in place, AP and finance teams can gain near real-time insight into spending patterns, reduce payment delays, and position their businesses for growth—even while navigating economic ups and downs.
From managing fluctuating material costs to ensuring timely payments across complex subcontractor and supplier networks, AI-enhanced AP automation software helps finance teams make faster, smarter decisions.
Preparing for What’s Next
The construction industry is facing significant pressure—but it’s also ripe with opportunity.
Firms that embrace automation and invest in digital tools today will be better positioned to:
• Reduce project risk
• Build stronger supplier relationships
• Improve cash flow health
• Respond strategically to future disruptions
Are You Ready to Transform Your AP Process?
Explore how AvidXchange’s solutions for construction help companies strengthen supplier relationships, provide more visibility into cash flow, and increase efficiency amid economic uncertainty.
