Strategies to Improve Cash Flow in Construction Projects

A construction accounting system will allow teams to review and analyze all budgets, POs, cost types, and payment reports with the help of document management software. This helpful and innovative accounting system can also be integrated with other accounting tools and bring standard accounting reports into the system. Cash flow is closely tied to project manager performance and the ability to plan regardless of which tool you choose. Most of a construction company’s incoming cash comes from works-in-progress and is impacted by the quality of project management.

Late payments can affect cash flow negatively. If payments are not received quickly, they will impact future projects and even jeopardize the business. Delay payments represent a carrying cost for a construction business and are generally collected through collections or late fees. In construction, penalties for late payments should be spelled out in the construction contract. If payments are not collected promptly, a construction company may suffer from negative cash flow in the long run.

A construction company may experience negative cash flow if a client withholds a certain percentage of the contract price until the project is completed. This is known as retainage and can be as much as five to ten percent of the total contract value. Failure to factor in the delay in collecting retainage payments will jeopardize the completion of a project and increase its costs. A construction firm can accurately predict the cash flow and avoid unexpected expenses using construction estimating software.

One of the most overlooked ways to improve cash flow in construction projects is to always budget for a 10% retention holdback on your contract value. This way, you will have less money to spend on overhead and expenses. Another method is to consider new payment policies. For example, you may offer early-payment discounts to your clients. Remember, homeowners like to save money, and if you can offer these incentives through building estimating software Australia, you will win new leads and grow your business.
If you want to learn more about the strategies to improve cash flow in construction projects, you can read this infographic from Bizprac.