In the construction industry, cash flow is an important part of keeping operations up and running effectively. With insufficient cash flow running in and out of the business, a construction firm may start to run into complications. When this occurs, the only solution for the company is to try and boost their cash flow. Following are the best kept strategies to boost cash flow in construction to help improve a firm’s overall success and operations.
1. Predict Future Cash Flow
For construction firms to be able to boost cash flow in their business and industry, they first need to predict future cash flow. However, this can be difficult in some circumstances due to the changing projects and orders on current projects. To help with predicting future cash flow, a CEO or firm leader needs to take a look at prior projects and cash flow operations.
By collecting data on expenses and income gained across the years, the business has a better chance of planning and executing future cash flow management solutions in the next financial year. When predicting future cash flows, always anticipate changes to costs and income, as unexpected projects may arise from time to time.
2. Spread Out The Costs
Unless the company receives a steep discount from a materials supplier, it’s best to manage your cash flow by spreading out some of the costs. While this may come with interest, it will help spread out outgoing payments to help leave more cash for the construction firm to use.
3. Process Changes To Orders Quickly
In the construction industry, changes to orders are common and often result in more time, money and resources having to be used to complete the order. Extreme weather conditions generally play a major role when changes are required.
The problems occur when the project manager waits until the end of the job to implement these changes. This is where additional outlays in cost occur. Instead, it’s important for the project leader to make the changes quickly to the project to reduce additional costs and time delay. If costs blow out of proportion to the original agreement, the construction firm leader needs to let the client know in order to receive money in a timely fashion.
4. Set A Goal Pay Date For Outstanding Invoices
One major problem for construction firms is the waiting time on unpaid invoices from clients. Unpaid invoices that stretch a lengthy amount of time can affect the overall cash flow coming in and out of the business. On average, a construction firm generally has a period of 60 to 90 days to get paid.
However, if the firm’s leader sets a realistic and firm goal of 50 days, it helps the business receive unpaid money faster to keep operations consistent without the company getting behind in any bills they owe. Invoicing can be done instantly and to improve client payment timing, the company can consider offering payment incentives. Upon invoicing, the construction firm also should give clear indication to the payment terms and consequences that may occur when payment is late, such as fees, limited services or halts in the project completion.
A list of non-payers also should be written down to ensure dealings with these clients in the future is limited until payment is reached. Continuous non-payers who have an outstanding bill of a year, without any form of payment, needs to be addressed immediately, and work with this client should be discontinued completely.
A construction firm has a big responsibility to ensure proper operations are carried out. To ensure this happens, good cash flow is required. By knowing the best strategies to boost cash flow in the construction industry, firm leaders can easily help improve their overall operation without getting behind in their own sea of bills and accounts. Proper cash flow management is key to establishing a stress-free construction firm.