5 Ways A Construction Company Can Boost Cash Flow

All businesses need good cash flow, but construction companies often find themselves struggling to keep up in this area. If your business is constantly taking short term loans, chasing receivables, and delaying purchases or payments, here are a few things you can do to make cash flow better.

1.  Check Contracts

The best place to start maximizing cash flow is to negotiate contracts in your favor. This is the stage when you can set payment terms, designate upfront payments, and stipulate consequences for late payment. Make sure you're using all available leverage to do just that. If you take a contract as it's presented, you may be leaving money on the table that you need later.

2.  Estimate Well

Estimates are how you determine your own costs for the project. They need to be accurate. Use high-quality estimating software designed specifically for your industry and type of jobs. Create templates and price lists that will help you speed up the process while providing reliable information. When you make changes to actual jobs and prices, ensure these are tracked to estimate pricing as well. 

3.  Bill Correctly

One of the biggest sources of payment delays is errors and miscommunications in billing. Ensure that invoices are sent to the correct client contact, that they are for the contracted amount, and that you have backup documentation for the bill.

Consult the contract, and create a billing schedule that everyone has access to. For the best results, make sure you use an accountant with construction experience. 

4.  Follow Up Promptly

Don't let months go by without following up on accounts receivable. Many small businesses are reticent to "rock the boat," but a tactful inquiry is one of the simplest ways to get paid on time. Look for a qualified person in your company who can make direct contact with clients and customers, being authoritative without being abrasive. 

50  Understand Liens

Liens are a part of construction businesses that many people from other industries don't have great knowledge of. Educate yourself about how liens work — both yours and those of subcontractors who work under you. When you sign off on lien waivers, for instance, know exactly what you're signing off and exactly what has been completed.

Construction work is volatile and cyclical. So, having accurate estimating and billing tools as well as paying attention to the details will help you stay above water no matter how tight your profit margin is. For more information, contact a business accounting service.