Securing Positive Cash Flow, Part 2: Problems & Taking Action

Taking action to secure positive cash flow requires direct communication, detailed billing and proper documentation of changes to a job’s original scope.

As you read through each action segment, make a note of how you can improve your processes to support positive cash flow.

1. Communication with Your Staff

Communicating to your sales and estimating departments that getting paid on time is very important and can often stop cash flow problems before they even start.

Setting this expectation up front allows these individuals to focus on securing work with general contractors (GC’s) and owners that have a reputation for paying on time.

In the field, communicating job progress vs. budget spent lets project managers and superintendents know if their projects are on target or if their crews need to work faster to stay on budget. By making sure that your jobs are progressing at the same rate as your budget expenditures, you can be confident that progress billings will continue to cover overhead expenses.

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?

In addition, discuss issues such a proof of insurance, certified payroll and lien releases and ask what issues have come up in the past that have delayed payment to vendors. 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.

4. Billings

The way you bill your scheduled values can really help to eliminate cash flow issues; most notably, by billing for preliminary items up front. For example, invoice for insurance expenses and temporary storage mobilization at the start of the job. To ensure that your initial costs are covered, you might even consider putting a higher profit margin on these billing items to cover any unexpected costs associated with job startup.

5. Collecting

When payment delays do occur, collect aggressively. Remind the GC or owner of the project’s original payment terms and that you expect them to live up to their end of the agreement. Having a collection fall-back to the initially-established terms can dramatically increase your chances of getting paid without further delay.

6. Putting Priority on Change Orders

Establishing standardized processes for managing change orders is the best way to help your staff secure proper approvals and avoid getting burned by unapproved or undocumented changes. Make it a priority to get the appropriate paperwork and documentation signed by the GC or owner so the approved change order can get on the next billing.

For optimal change order management, tracking documentation such as e-mail correspondence, faxes and other paperwork in a single, electronic system is ideal. (Many AccuBuild Construction Software users have implemented ADMS [AccuBuild Document Management System] to store this information.) Having a project data repository with change order correspondence will keep everyone on the same page and establish a proven paper trail if litigation is necessary.

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Learn more from the “Securing Positive Cash Flow” Blog Series:

• Securing Positive Cash Flow, Part 1: Do You Have a Problem?
• Securing Positive Cash Flow, Part 2: Problems & Taking Action
• Securing Positive Cash Flow, Part 3: Maintaining a Standard of Excellence

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Josh Stearns is CEO at AccuBuild. He can be reached by e-mail at josh@accubuild.com or by phone at 800-728-6853 Ext 801.