Positive cash flow is essential for any business to survive. The better the cash flow is, the faster a company will be able to grow and reach its goals. You want your business to generate consistent profits, but not everyone knows how to improve cash flow.
Every industry is different, so what works for one business may not work for another. Construction cash flow management relies on certain strategies that can help to improve financial stability and company growth.
Keep reading for a rundown of eight ways that you can improve construction cash flow management.
1. Project Future Cash Flow
Making future cash flow projections can be quite challenging. This is true in any industry, but more so in construction than in most others. This is because jobs vary so much and current projects can have change orders that make things even more complex.
One of the best ways of improving project estimation accuracy is to use cash flow management software. It can help you get a better idea of the income and expenses you might have in the future. You can then plan things out more effectively, helping to prevent issues with payments and payroll.
2. Spread Out Costs
It may seem normal to buy materials and supplies with cash, but this is usually actually a bad choice. You should only do this when getting a very good discount, but under normal circumstances, it’s often better to finance these goods.
Construction projects often require significant upfront investments in materials and supplies, and financing options can help improve cash flow for construction companies. By using supplier financing options such as loans or credit lines, construction businesses can avoid depleting their cash reserves and instead have more cash on hand to support ongoing operations and fund future growth.
3. Shop for the Best Prices
When looking for supplies, don’t just go with the first option you come across. Take the time to compare the prices of different suppliers to see what deals you can find. It’s worth letting suppliers know that you’re looking for the best deal available, as this will encourage them to give you a good offer to secure your business.
Proper inventory control in construction means consistently having a good supply of materials. A supplier will want you to keep buying from them, so many will offer discounted prices to get you as a client.
4. Approach Payroll Correctly
Payroll is typically different in construction than in most other industries. Employees are usually paid bi-weekly, rather than monthly. You can hire subcontractors, however, as these are typically paid every four weeks. Effectively handling payroll in the construction industry demands a specialized approach that differs from other sectors.
By implementing strategic subcontractor management, construction companies can optimize cash flow and ensure smoother operations. It is essential to strike a balance between permanent employees and subcontractors to maximize results, minimize errors, and enhance customer satisfaction.
5. Process Change Orders Quickly
Change orders aren’t always ideal, but they’re sometimes inevitable in construction. They typically happen when a project is going to take longer than initially expected, or it requires more money and resources. Sometimes, it can simply be because bad weather has made progress difficult.
When a change order is needed, the project manager should aim to get it done as quickly as possible. This will help get things back on track so that the project can be completed without too much delay. If a project is delayed for a long time, it will take longer to receive the money, negatively impacting cash flow.
6. Send Automated Invoices Immediately
Invoice management for construction companies is very important, but invoicing is a tedious task, and it can take a lot of time. Automation is a great way to streamline processes like invoicing. This will help save a lot of time, and you can then use this time more effectively.
There are various automation tools you can use for this. When you set things up, you want to make sure invoices are sent out right away. The sooner they’re sent, the sooner you’ll receive payment.
7. Accept Electronic Payments
They say that cash is king, but these days, people also put a lot of value on flexibility and convenience. Some people may want to use different payment methods, so making this possible will keep things simple for everyone.
This will help you boost sales as people will know that payments are easy, and faster payments help to improve cash flow.
8. Avoid Over and Under Billing
It’s not uncommon for some project managers to deliberately over-bill. This will increase initial cash flow, but only for a short while. Once a project is completed, it will then reduce cash flow.
Conversely, under billing will reduce the initial cash flow, and increase it at the end of a project. Many people consider it best to bill according to how much of a project has been completed to keep things balanced.
Improving Construction Cash Flow Management
Good cash flow is always beneficial to a business. There are a lot of factors that can affect it, and knowing how to improve cash flow in your company will help significantly with business growth. Construction cash flow management can be more complex than in other industries, but these tips can help you improve.