A healthy cash flow is the lifeblood of contracting in the construction industry. Unfortunately, a lack thereof has contributed to many projects coming to a screeching halt. If you want to avoid going out of business and keeping up with the abundant work opportunities on the horizon, it is crucial you learn how to manage your cash flow problems. This article will tell you how.
Culprits That Deplete Cash Flow
Cash flow is cash receipts minus cash payments over a period of time. There are various culprits that can drain a subcontractor’s cash flow over the course of a project. Subcontractors should be on the lookout for the following:
- Failing to close out projects properly
- Failing to follow procedures to issue payment requisitions on time
- Not pursuing outstanding debts quickly
Do not wait until you are beyond the point of no return to realize you have a cash flow problem. If you are a contractor that is not getting paid for the work you have performed, contact a Miami construction litigation attorney to see what your options are for collecting payment.
How to Improve Cash Flow
There are various ways to improve your cash flow. It is important to plan and monitor your cash by determining how you will bill beforehand. You can also strengthen and boost cash reserves and borrowing capacity. Additionally, establish due dates for payments and give incentives for early payments. Other strategies include:
- Substitute municipal bonds for retainage on public contracts
- Lease instead of purchasing fixed assets
- Refusing to bid on every project presented to you
- Evaluating cash flow impact of payment terms and retention release provisions when bidding
- Establishing a credit line with a bank
- Securing long-term financing
Cash flow problems can be a great challenge but cannot be ignored. The key is to train management on good cash money management and hold them accountable. Cash flow problems should be identified and addressed early on to avoid unnecessary delays to your projects. Failing to do so can result in increased expenses, a lower credit rating, and missing out on viable construction opportunities.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.