How Relationship Management Affects Cash Flow

by Danny Parrish

We all know that cash flow is the lifeblood of contractors. What’s not always obvious, however, is that controlling cash flow often starts with relationship building. This is one area of construction management where a pro-active – rather than reactive – approach can make a huge difference for a company.

To become pro-active at building relationships that support cash flow, you need to emphasize to everyone that cash flow is important to your business. This includes internally with your employees as well as externally with your customers.

Employees. When it comes to cash flow, continually emphasize to your marketing and/or estimating departments that they should only seek to work with customers (or general contractors) that are financially strong. Make sure that your staff understands that billings need to get out on time and that collection efforts on late accounts should happen sooner rather than later.

Customers. Adamantly stress to your customers (whether these are project owners or general contractors) that your company insists that financial terms and contractual conditions be honored, particularly with regard to payment terms and due dates. Get to know the people that are responsible for processing your A/P invoices. Contact these people before payments are due to make sure that everything is on schedule. Find out when payment selections for check runs are made and provide reminders when you are expecting payment.

Although maintaining positive cash flow is dependent upon many things, as the person in charge of financial operations, there are relationship building tactics you can use to help. In summary:

• Internally, keep your owner aware of your company’s cash flow and how important it is to the success of the company. 
• Make sure that your marketing/estimating departments understand the importance of selecting owners or general contractors that are financially stable and have a history of meeting payment obligations in a timely manner. 
• Stress to your project management personnel that they must perform their job duties in a manner that creates a positive situation (ie: paperwork, contracts, billings, change orders and so forth complete and timely).
• Externally, develop a relationship, even if only by phone or e-mail, with the project owner’s financial department to set and keep the expectation that payments must be made in a timely manner.

Great relationships are built upon foundations of commitments made and expectations met. Your company must do its part by meeting contractual terms, documentation, paperwork, schedules and quality obligations. In addition, your company must manage the customer relationship to set the expectation that others must also meet their commitments. By keeping your relationships firm but fair, and maintaining positive communication, you are more likely to avoid a negative situation where expectations on either end aren’t met.  

Danny B. Parrish is President of Parrish Consulting Group, which provides a wide range of consulting and temporary services to construction companies in the areas of accounting, finance, strategic planning, marketing, human resource and information management. A former national president of CFMA, Danny is a frequent speaker at national and regional industry events. His experiences in the A/E/C & Design-Build environment have given him opportunities to serve as an advisory board member for organizations seeking outside expertise and assistance and as a consultant to insurance agencies, software enterprises and accounting firms seeking insight into the construction financial management environment. For more information, call 972-567-2381 or e-mail dbparrish@msn.com.