News & Insights

Managing cash flow in a construction business is often more challenging than in most other industries. Tracking your company’s cash flow recognizes when cash comes in, goes out, and how much. The timing of cash transactions can significantly affect your business’s financial position. The nature of lump sum progress billings and subcontractor and supplier payments can lead to significant changes in bank balances over relatively short periods. A cash surplus can quickly turn into a shortage if subcontractor payments go out before collection on a job. Below are some tips for managing cash flow in the construction industry. Cash inflows must come first in any cash management cycle. However, there are several ways to improve this portion of cash flow:

• Set a regular schedule to progress bills on jobs instead of delaying billings until a contract is completed.
• Frontload progress billings to a reasonable extent, so cash is sufficiently available for future job costs.
• Tighten customer credit terms, when possible, and frequently monitor accounts receivable.
• Offer discounts for early payments and encourage customers to pay electronically (for example, via wire transfer or ACH (Automated Clearing House)).
• Negotiate retainage amounts held back by the owner of the project to the extent possible.

Cash outflows occur next in the cash flow cycle. So here are some tips to enhance cash flow on the vendor payments side:

• Set a regular schedule of issuing vendor payments instead of creating a habit of cutting “ad-hoc” checks.
• Negotiate looser credit terms for payments to subcontractors or other vendors, if feasible.
• Delay payments by clearing the bank by issuing checks or paying via credit card.
• Negotiate retainage amounts held back by vendors, especially for riskier projects.

The time value of money cannot be understated: a dollar today is worth more than a dollar tomorrow. Planning is the key to the management of cash. Seek out the experts, work with an advisor or accountant to create projections, and update them as circumstances change. Our specialized experts provide construction business’s a range of accounting and financial management needs. From CFO-level solutions to part-time bookkeeping needs, Maner Costerisan can eliminate headaches and pain points in the financial sector of the business while providing critical information on a timely basis to help leaders make decisions.