For all businesses, cash flow is the beating heart of day to day operations. Without money coming into the company, you can’t sustain the level of investment which needs to move back out and into customers. While is a very simple process to understand, it rarely plays out so simply. Managing the cash flow from receivables is a tough job because customers are never as quick to pay for resources as they are to use them.
This is particularly true for the construction and contractor industries. As no two projects are ever the same, each invoice procedure has to be slightly different as well. It is also worth pointing out that, unlike other industries, the construction sector invests a huge amount in time and resources well before the receivables process begins. This means that delayed or denied payments can be a major problem.
This guide to improving cash flow will discuss some of the most common obstacles and the best ways to solve them.
Your Billing Cycle Is Too Long
By using a progress payment system when working with contractors, you can easily cut down on the length of time it takes to receive payments. Break the job into a schedule; outline what tasks/elements should be completed at each phase to ensure that you receive regular payments so you can cover your costs. The number of progress payments will depend on the size of the job and the length of time it will take to complete. However, as a general guideline, you should receive a progress payment fortnightly.
When you’ve already sunk time, resources, and materials into the project, not receiving regular payments can be a big blow. You certainly can’t take on any other major contracts, until you’re sure that you’ll have the money to fund them and closing on completed jobs is a big part of this. Ultimately, you are the only one in control of how regularly invoices are issued after each phase of the project is completed, so make sure that the gap between each one stays relatively small.
You Don’t Close Out Fast Enough
A lot of inexperienced construction companies make the mistake of thinking that finishing a project means completing the work. In reality, your responsibility extends a little further than this. Usually, there are other contractors waiting to begin work as soon as you are finished, so you’ve got to remove all tools and surplus materials. You’ve also got to ensure that all the necessary paperwork is finalised and handed over.
Delaying in any way can incur penalties and prevent you from being paid on time. Technology can be a particularly valuable asset in this regard, as it will help you to keep track of project documents and communicate efficiently with customers and fellow contractors. For instance, fully integrated project and invoicing apps make it easy to send progress updates and share and collaborate on delivery, handover, and payment schedules.
You’re Not Firm about Delayed Payments
Dealing with late payments is one of the toughest challenges for most businesses because nobody likes to put a negative spin on customer relations. However, your company can only survive if cash flow remains healthy and people pay when they’re supposed to. Persistence and consistency are key. You should never be afraid to remind (and remind again) when it comes to delays.
Certainly, don’t be afraid of damaging your relationship with the late payer. If you can’t rely on them to uphold their end of the deal, they’re not a valuable client anyway. Maintain a persistent level of contact and progress to the use of strong language if your requests continue to be ignored. The last resort is to take the matter to the courts, but this is quite rare. Most customers will pay up as soon as they are aware that legal action can and will be taken against them.
Why Technology Is a Secret Weapon for Contractors
The more efficiently you can organise your receivables accounts, the better chance you’ll have of payments being made in full, on time. This is because logs and records reduce the time it takes to bring together information and give all involved parties the go ahead to move on with the project.
And the faster that you wrap up your contribution, the sooner you’ll be paid. Mobile invoicing apps and digital spreadsheets are particularly useful because they can be accessed on the go. You don’t need to put work on hold to consult documents; you can proactively update, edit, and collaborate.
