To stay on top of their game, contractors must guarantee profitability. Positive cash flow is one way to ensure success, possibly the most critical way. Conversely, cash-flow concerns will quickly thwart a business owner’s plans. Sometimes, cash management challenges are the result of something pretty great – growth. Other times, they are the result of project delays, billing and collections, and variability in materials cost.
According to Barlow Research Associates, 63% of heavy construction firms said they go to their accountant or bookkeeper for cash flow advice, while 38% turn to their banker and 3% do not seek advice. This statistic reveals an unfortunate reality – at some point, your construction business will face a cash flow problem. While the majority of firms are turning to specialists for advice, 3% are in either in denial or have found the secret to a perfect cash process. Wherever you land on the cash flow spectrum, addressing the blind spots in your financial processes will minimize the damage from cash flow issues. With the right knowledge, tools, and protocols, you can help close the gaps. In this article, we are going to look at how improving communications can help you address a cash flow issue.
An embarrassing reason for customer non-payment comes from simply forgetting to send the bill. If you do not bill at the same time every month, invoices can slip through the cracks. When you communicate a consistent billing plan, both to your accounts receivable department and to your clients, the natural result is a more consistent receivables process.
When your accounts receivable process lacks discipline, the aggregate result is a significant gap between billing and collections, and a major cash flow issue. Finding the right balance in your cash cycle requires you to close the gap between collections and billing. If you are currently in a timing nightmare, it is time to look at your terms. By analyzing your Job Cost Detail report, you can pinpoint where things are going awry and how you can position yourself for success in the future. Make sure the lines of communication are open between accounts payable and accounts receivable. If the left hand does not know what the right hand is doing, your cash flow will pay the price.
Collection creep tends to happen when your back is turned. As the saying goes, an ounce of prevention is worth a pound of cure. Stay one step ahead of your billing cycle by setting up a trigger to check in with your customer at least five days before a bill is due. Instead of starting the conversation as a collections call, frame it as a client service call.
Hi Client,
This is John Doe from ABC Construction. I wanted to check in with you to ensure you are satisfied with our team and their work. I also wanted to make sure you received our invoice and ask if you have any questions before payment is due. It has been a pleasure working with you, and we hope we have the opportunity again in the future.
Establishing this kind of repertoire will help you stay in front of any client service issues and anticipate if a payment problem is likely to arise.
You must be diligent when it comes to making sure your collectible and payables are in harmony. Take a look at your business to see if a lack of communication is impacting your cash flow cycle. If you need assistance getting back on track, the professionals in our office are here to help.
