While managing cash flow is challenging for many organizations, contractors and construction company leaders face unique obstacles to keeping cash flow on the positive side. Between clients that make slow payments and those who continuously ask for extensions, it is hard to make your own payments on time. And, then there is the high payroll burden that must be met regardless of whether you manage to get every stakeholder on the same page you are.

Here are five actions that negatively impact cash flow management strategies:

  • Failing to budget projects and essential operations properly
  • Inefficient invoicing policies and processes
  • Issuing accounts payable checks early (paying on time is the best practice)
  • Paying cash for capital asset purchases (yes, sometimes buying on credit is a wiser choice)
  • Using allocated cash for other investments and purchases

While adding another expense to a budget that is already stretched to the limit, may seem counterproductive, an outsourced processional service can actually help you shave operating expenses and take control of your cash flow management.

Consider these solutions that will help your construction company reduce stress and establish a reserve to get you through the rough times – when customers don’t pay on time and weather forces down time.

Outsourcing Cash Flow Management Advantages

Perhaps the most advantageous benefit of outsourcing cash flow management, is that you will get experts who help you establish and implement strong accounting practices. Accounting is about more than just creating a record of incoming and outgoing transactions. Good accounting practices ensure your processes are efficient and cost-effective.

Ask yourself, does your bookkeeper send out invoices on time? Are you depositing incoming money promptly? How do you handle late payments? The answers to these questions can help you adjust your internal processes to improve cash flow. If you don’t bill a client and provide a clear, detailed invoice, you can’t expect payment on time.

An experienced outsourced accounting team can help you:

  • Avoid over/under billing errors
  • Create accurate estimates – this is an essential cash flow management tool. Better estimates prevent budget overruns and delays and keep everyone happier!
  • Develop closeout and project change processes that expedite final invoicing and billing processes
  • Explore better supply management options – for example, your general contractor or individual property owner can purchase supplies and materials directly from their preferred supplier
  • Negotiate the best payment terms with creditors and your clients – this includes asking for volume discounts from suppliers and negotiating pre-payment discounts
  • Provide financial advice so you know whether financing assets or purchasing them on credit is the wisest move
  • Review internal workflow to make sure your team follows consistent invoicing and collection policies
  • Understand cash flow statements and other financial reports that help you check the pulse of your business before making any financial decision.

Benefits of Rethinking Accounts Receivable Policies

Every experienced contractor knows that in the construction industry cash trickles down. The property owner or financial institution holds the purse. Cash flow from the “owner of the cash” to primary contractors, independent contractors, subcontractors, suppliers, etc. The lower you are on the totem pole, the slower payments seem to come. Primary contractors tend to make payments to lenders and owners first. If there is any money left, they pay the balance out to everyone below them.

This natural flow is what makes it necessary to establish the best invoicing policies practical. Even if you cannot force a lender to issue your payments first, implementing sound preliminary notices and mechanics liens practices is critical for maintaining positive cash flow. Working with an industry expert with decades of experience managing construction financial matters, ensures your late payment policies encourage clients to pay in full, and on time.

Working with Daaxit Cashflow Management Strategies For Success

Daaxit helps small-to-mid-size contractors build better businesses. If reducing stress and spending fewer hours trying to find money in the budget to pay all your bills on time sounds good to you, today is the day to schedule an appointment to discuss your biggest concerns with a financial expert with construction experience.

You have nothing to lose and everything to gain with a free consultation. Take two minutes to fill in the short request for service form.
Or, Find Out How a Fractional CFO can Help You with Our Free Financial Health Assessment.
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