Do you have effective processes in place for improving cash flow? As you know, accelerating cash collections is a crucial component. Here are three helpful management techniques to consider:

1. - Attend Pre-Construction Meetings

Get answers regarding payment processing so you are prepared.

- When to bill each month
- How many days for payment cycle
- Discuss the billing breakdown for the schedule of values or billing line items
- Discuss procedure on billing for “stored materials”
- Discuss process of handling change orders should they arise
- Ask for early release of retention money or reduction in retention percent
- Develop a good relation with the person responsible for issuing payments
- Ask if checks can be picked up in person instead of being mailed

2. - Act on Preliminary Items Immediately

- Sign and return contract
- File Preliminary Lien Notice
- Submit insurance certificates for Workers Comp and liability
- Submit bonds when applicable
- Shop drawings, submittals etc.
- Determine method for acquiring billing percentages

3. - Discuss Job Requirements with Subcontractors & Vendors

- Issue subcontracts / purchase orders where applicable
- Obtain insurance certificates as necessary
- Clarify pay when paid policy and make it clear to your vendors and subcontractors the number of days it will take to process their payments once you have been paid on the project.
- Check the project specifications for details and use the maximum number of days to pay your vendors whenever possible.
- Incorporate retention withholding policy with subcontractors

Last week I blogged about five ways construction software (reports) can help you increase cash flow. Today I’m going to explore this topic further by stressing how important it is to COMMUNICATE. Yes, when it comes to securing positive cash flow communication is king.

1. - Communicating with Staff - You must communicate to your sales and estimating departments that getting paid on time is very important. Set this expectation from the beginning so these individuals will focus on securing work with general contractors (GC) and owners that have a reputation for paying on time. You’ve got to talk with your project managers and superintendents about job progress vs. budget spent so they know if their projects are on target.

2. - Communicating with GC’s and Owners - Before you start a job, find out what payment terms the GC or owner is accustomed to. Ask questions like: When should we submit our billing? When should we expect payment? What is the worst case scenario for payment terms? What is the best case scenario? What do we need to provide each time we submit a billing? How would you like change orders handled? Straightforward communication about payment terms and potential problems will ensure that your invoice doesn’t get overlooked due to a technicality.

3. - Communicating with Subcontractors and Material Suppliers - After establishing payment requirements with a project’s GC or owner, you should communicate this information to the job’s subcontractors and material suppliers. Help these parties understand the payment terms for the job - and that you will pay them once you get paid. Explain the best and worst case scenario and touch base regularly until payment is made. By letting your subcontractors and material suppliers know what to expect around payment terms, you can often avoid having to pay them before you get paid.

Many contractors struggle with cash flow - juggling payments due with revenue received - and often come up short. It seems to be the nature of the beast.  If you’re in this situation and want to effectively change it, you need to explore the benefits of construction software reporting.  Here are five compelling reasons to consider:

1. - Analyze Cash Flow by Job - One bad job can lead to huge financial problems. As jobs progress, it becomes critically important to be able to monitor how much cash is going out and how much cash is coming in. Imagine having all of this data available - in real time - for each job.

2. -  Monitor Over/Under Billings - Monitoring over/under billings is the key to maintaining a positive cash flow on your jobs. The ability to calculate these amounts quickly, accurately and easily means you can see a cash flow crisis before it actually happens.

3. - Committed Cost - Early estimates make a direct impact on staying on or under budget. That being said, you must include committed cost.  Why? Because even if you haven’t been invoiced for POs or subcontracts, these commitments need to be viewed as future cost. Wouldn’t it be nice to know exactly how much cash you’ll need in the future?

4. - Measure Profit Fade - The profit calculated when bidding a job can fluctuate dramatically as the project progresses. Change orders might bump profit and a poor estimate might hurt it. Measuring the profit fade per job (in real time) gives you the ability to make corrections before it’s too late.   For example, if the value of your contract does not increase incrementally with cost, you need to identify why.

5. - Monitor Backlog - It’s the crystal ball you’ve always wanted! It’s true - your backlog can help you estimate what your cash flow situation might be in the future. Monitoring estimates-to-complete for earnings, cost and profit will put a dollar amount on your backlog. Whether you’re projecting growth or preparing for slow times, you won’t be stuck in a negative cash flow situation.

With the right construction software, all of the data should be at your fingertips at all times. If not, it’s time to think about making some changes. Register to view AccuBuild sample reports here.